IMF Explains Why Petrol Subsidy Must Not Return In Nigeria

The International Monetary Fund (IMF) has warned that petrol subsidy era must not return in Nigeria.

The organisation noted that the government can do more to help struggling households by providing direct financial support and reducing the cost of essential services rather than returning to subsidy era.

The IMF said keeping petrol prices artificially low would put more pressure on public finances, with wealthier consumers likely to benefit more from the arrangement than poorer Nigerians.

Naija News reports that the director of the IMF’s Fiscal Affairs Department, Rodrigo Valdés, gave the advice on Wednesday during a briefing on the fund’s Fiscal Monitor at the 2026 annual meetings of the IMF and World Bank in Bangkok, Thailand.

He was responding to concerns about the impact of rising energy prices on Nigerians, particularly the increase in transport fares, inflation and the cost of living.

The debate over petrol subsidy has continued in Nigeria, with calls for its return ahead of the 2027 general election as motorists and households struggle with high fuel prices.

Valdés argued that protecting people from the effects of rising fuel costs should not mean keeping prices low for everyone.

“Protecting people is not the same as protecting the price of fuels,” he said.

According to him, fuel subsidies and other measures that prevent energy prices from reflecting supply shortages cost countries between one and 1.5 per cent of their gross domestic product in 2026.

He said such spending was difficult to sustain, especially when governments were already facing rising borrowing costs.

“It’s first fiscally very costly, and second, if you look at the pattern of consumption, it’s easy to see that that subsidy is readily regressive in many places,” Valdés said.

The IMF official urged the Nigerian government to use household data and social protection programmes to identify people who genuinely need help instead of subsidising fuel for all consumers.

“There are better tools to deal with this,” he added.

Naija News reports that the IMF’s submission comes days after President Bola Tinubu’s government announced a 30-day petrol discount at Nigerian National Petroleum Company Limited (NNPC) retail stations to ease the pressure of rising fuel prices.

The initiative gives priority to public transport operators, with the aim of reducing the effect of petrol costs on transport fares and other expenses.

Minister of Finance Taiwo Oyedele said NNPC retail outlets would sell petrol at cost by giving up their retail profit margins.

He described the measure as temporary relief for consumers, rather than a return to the petrol subsidy system.

The government also proposed negotiating a ceiling of ₦1,350 per litre on petrol’s ex-gantry or landing cost, subject to monthly reviews.

The IMF also urged governments to consider other ways of helping vulnerable households cope with higher fuel prices without subsidising petrol across the board.

Davide Furceri, a division chief in the fund’s Fiscal Affairs Department, said some of the money spent on general fuel subsidies could instead be used to support people most affected by rising living costs.

He suggested that governments could subsidise public transport fares to prevent increases in petrol prices from making daily journeys unaffordable.

“For example, you mentioned transportation costs. 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,” Furceri said.

He also listed school feeding programmes, support for vulnerable farmers and assistance targeted at people living in affected areas as possible ways to protect households.

Furceri acknowledged that some countries did not have reliable household records or digital payment systems to identify beneficiaries and deliver financial assistance.

However, he said governments could use other arrangements in the short term while building better systems for distributing support.

He stressed that any intervention should be temporary and directed at those who needed it most.

Valdés also warned that keeping fuel prices below market levels could worsen pressure on global energy supplies.

He explained that when governments subsidise petrol, consumers have less reason to reduce their consumption, even when supplies are limited.

This, he said, leaves the market to make a bigger adjustment, potentially pushing prices higher.

“When you subsidise, you don’t allow, at the end of the day, demand to adjust,” he said.

“And reality is that we have less fuels in the world economy. That means that someone else has to adjust more, and the market produces a higher price for that.”

The IMF reiterated that broad fuel subsidies were expensive and often benefited higher-income consumers disproportionately and could create additional pressure across the global economy.