IMF Warns Nigeria Against Petrol Subsidy Return, Backs Targeted Relief

The International Monetary Fund (IMF) has warned Nigeria against restoring a general petrol subsidy, urging the Federal Government to provide targeted financial assistance to vulnerable households instead.

The fund said blanket fuel subsidies place a heavy burden on public finances, often benefit wealthier consumers more than the poor and can worsen fiscal pressures as borrowing costs rise.

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 spoke after a question on the consequences of allowing fuel prices to reflect supply shortages in Nigeria. The question highlighted concerns that higher petrol prices could increase transport fares, fuel inflation and deepen poverty, especially as pressure mounts on the government to restore subsidies ahead of the 2027 general elections.

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

He explained that fuel subsidies and other measures that prevent domestic prices from adjusting fully to energy shocks had cost countries between one and 1.5 per cent of gross domestic product in 2026.

“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,” he said.

Valdés urged governments to use social protection programmes and household data to identify those who genuinely need assistance rather than subsidise fuel consumption across the board.

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

The IMF’s position comes as the Federal Government introduces temporary measures to cushion Nigerians against rising petrol prices.

The government recently announced a 30-day petrol discount at Nigerian National Petroleum Company (NNPC) Limited retail outlets, with priority for public transport operators.

Minister of Finance, Taiwo Oyedele, said NNPC retail outlets would sell petrol at cost by foregoing their retail profit margins. He described the arrangement as temporary relief, rather than a return to the general petrol subsidy.

The government has also proposed negotiating a ceiling of N1,350 per litre on petrol’s ex-gantry or landing cost, subject to monthly reviews.

Meanwhile, the IMF has recommended directing part of the resources spent on broad fuel subsidies towards targeted interventions for low-income households and other vulnerable groups.

Davide Furceri, a division chief in the fund’s Fiscal Affairs Department, said governments could provide more effective relief by focusing on the specific costs that rising energy prices impose on vulnerable people.

He cited transport expenses as an example, arguing that governments could support public transport users rather than subsidise petrol for every consumer.

“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 recommended school feeding programmes, geographically targeted assistance and support for vulnerable farmers as alternatives to general fuel subsidies.

However, Furceri acknowledged that some countries lack comprehensive household databases and digital payment systems needed to identify beneficiaries and deliver assistance efficiently.

He said governments could adopt alternative methods to provide immediate relief while developing stronger systems for targeted social protection.

The IMF official stressed that such interventions should remain limited, targeted and temporary to prevent them from creating another long-term burden on public finances.

Valdés also warned that broad fuel subsidies could intensify pressure on global energy markets by encouraging consumption even when supplies become scarce.

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

He explained that when less fuel enters the global economy, consumers must adjust their demand to reflect the limited supply. If subsidies prevent that adjustment in some countries, the pressure on prices can increase elsewhere.

“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,” he said.

The IMF’s recommendation places targeted social protection at the centre of the debate over how Nigeria can shield households from rising energy costs without reviving a costly general subsidy.

Petrol prices affect transportation, food distribution and the cost of essential goods. The challenge for the government is to provide relief to those most affected without creating additional fiscal pressures.