‘It’s regressive’ – IMF warns Nigeria against restoring petrol subsidy

The International Monetary Fund (IMF) has advised Nigeria against restoring broad petrol subsidies, recommending targeted financial assistance and social protection programmes to cushion vulnerable households against rising energy costs.

The fund said blanket fuel subsidies were fiscally expensive, disproportionately benefited higher-income consumers and could worsen pressure on public finances amid rising borrowing costs.

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

Valdés was responding to a question on the impact of allowing energy prices to reflect scarcity, particularly in Nigeria, where rising petrol prices could increase transportation costs, fuel inflation and deepen poverty amid calls for the restoration of petrol subsidies ahead of the 2027 general elections.

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

He said fuel subsidies and other measures preventing energy prices from adjusting fully to supply 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.

The IMF official urged governments to use social safety nets and household data to identify people who needed assistance rather than subsidise fuel prices across the board.

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

The Federal Government recently announced a 30-day petrol discount at Nigerian National Petroleum Company Limited (NNPC) retail stations, with priority for public transport operators, to cushion the impact of rising fuel prices.

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

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

IMF Advocates Targeted Support for Vulnerable Households

The IMF also called for targeted interventions to cushion the impact of higher fuel prices on transportation and other essential household expenses.

Davide Furceri, a division chief in the fund’s Fiscal Affairs Department, said governments could redirect some of the resources spent on blanket subsidies towards vulnerable consumers.

He cited transportation support as one alternative, suggesting that governments could subsidise bus fares rather than reduce fuel prices for all consumers.

“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 identified school feeding programmes, geographical targeting and assistance for vulnerable farmers as possible measures to protect households from rising living costs.

Furceri acknowledged that some countries lacked comprehensive household registries and digital payment systems needed to identify beneficiaries and deliver targeted assistance efficiently.

However, he said governments could adopt alternative arrangements in the short term while developing stronger systems for delivering social support.

He stressed that such interventions should be limited, targeted and temporary.

Subsidies Could Worsen Global Energy Pressures

Valdés also warned that fuel subsidies could intensify global energy pressures by preventing consumers from adjusting their demand when supplies were constrained.

According to him, keeping fuel prices artificially low encourages consumption even when less fuel is available in the global economy, forcing prices to rise further as the market adjusts.

“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 official maintained that broad fuel subsidies were not only costly and regressive but could also generate spillover effects across the global economy.

The fund’s position places emphasis on targeted social protection measures that directly assist vulnerable households while allowing energy prices to reflect market conditions.