IMF Warns Nigeria Against Return to Petrol Subsidy Regime

The International Monetary Fund has cautioned the Federal Government against reintroducing a blanket petrol subsidy, urging it to channel support to vulnerable households instead as pressure over rising fuel costs mounts ahead of elections.

The warning was given by the Director of the Fund's Fiscal Affairs Department, Rodrigo Valdés, on Wednesday at the IMF and World Bank Group Annual Meetings in Bangkok, Thailand.

Valdés was responding to questions about growing calls for the restoration of petrol subsidies in Nigeria.

He acknowledged that increases in fuel prices often create political challenges for governments, but said a return to universal subsidies would impose heavy costs on public finances.

"At the end of the day, it’s very tempting politically speaking because it’s not trivial the political effect of the price of oil, of fuels, of gasoline, of diesel," he said.

But you have to explain that this is a global shock, first. Second, that it’s very, very expensive for the country not to recognise that shock.

"And third, it’s much better to use some of that money that would be spent in the subsidies channelled towards more vulnerable people."

Valdés said limited public resources would achieve better results if directed at households facing the greatest hardship, rather than subsidising petrol for all consumers regardless of income.

He cited transport support as a more efficient alternative to broad fuel price intervention.

"Yeah, gasoline could go up, and perhaps bus fees may be subsidised in a way. That is a much better policy at the end of the day than just a blanket subsidy for everybody," he said.

The position aligns with the IMF’s longstanding view that universal fuel subsidies strain government finances while benefiting wealthier households who consume more petroleum products.

The Fund also warned that fuel subsidies could worsen global supply pressures. It said keeping fuel prices artificially low during supply disruptions discourages demand adjustment, increases consumption pressures and can contribute to higher international prices.

The warning comes amid renewed concerns over petrol affordability in Nigeria following a rise in international energy prices and its impact on transport fares and household expenses.

In response, the Federal Government recently introduced a 30-day petrol price discount at Nigerian National Petroleum Company Limited retail outlets. Public transport operators were identified as priority beneficiaries.

The Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, said the arrangement requires NNPC Retail to temporarily surrender its profit margin and sell petrol at cost to ease pressure on consumers.

Oyedele said the measure is short-term and does not amount to a reinstatement of the petrol subsidy regime.