IMF Warns Tinubu Government Against Restoring Petrol Subsidy

The International Monetary Fund (IMF) has cautioned the Nigerian government against reinstating petrol subsidies, warning that such a move could intensify the country’s fiscal pressures and disproportionately benefit wealthier Nigerians.

The warning comes three years after the current administration removed the petrol subsidy, a policy that has contributed to higher fuel and transportation costs for households across the country.

Instead of keeping petrol prices artificially low for all consumers, the global financial institution urged the government to introduce targeted interventions that would protect vulnerable households from the rising cost of fuel and transportation.

Rodrigo Valdés, director of the IMF’s fiscal affairs department, issued the warning on Wednesday during a press briefing on the fund’s Fiscal Monitor at the 2026 annual meetings of the IMF and World Bank in Bangkok, Thailand.

Valdés was responding to concerns that allowing fuel prices to reflect supply constraints could drive up transportation costs, fuel inflation and poverty in Nigeria, particularly amid growing calls for the government to restore petrol 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 policies preventing energy prices from reflecting market conditions had cost countries between one per cent and 1.5 per cent of their gross domestic product (GDP) 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.

According to Valdés, governments should prioritise social safety nets and household data to identify people who genuinely need financial assistance instead of subsidising fuel consumption for everyone, regardless of income.

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

The IMF official also warned that blanket fuel subsidies could worsen global energy pressures by discouraging consumers from adjusting their consumption when fuel supplies decline.

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

Davide Furceri, a division chief in the IMF’s fiscal affairs department, also called for targeted support measures to reduce the impact of rising energy prices on vulnerable populations.

Furceri suggested that governments could redirect some of the funds used for general fuel subsidies towards low-income households and specific sectors experiencing the effects of higher energy costs.

“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 identified school feeding programmes, geographically targeted assistance and support for vulnerable farmers as additional measures governments could consider.

However, Furceri acknowledged that some countries lacked comprehensive household registries and digital payment systems needed to implement targeted support effectively.

He said governments could adopt alternative short-term interventions while developing the infrastructure required to deliver financial assistance more efficiently.

The IMF official emphasised that such interventions should remain limited, targeted and temporary.

Nigeria introduces temporary petrol discount amid rising energy costs

The IMF’s position comes as the Federal Government faces scrutiny over its decision to introduce a 30-day petrol discount at Nigerian National Petroleum Company (NNPC) Limited retail stations.

The government said the initiative was intended to cushion the impact of rising global energy costs, with priority given to public transport operators.

Taiwo Oyedele, minister of finance, explained that NNPC retail stations would sell petrol at cost by foregoing their retail profit margins. He described the arrangement as temporary relief for consumers rather than a reversal of the government’s fuel subsidy removal policy.

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.

Mohammed Idris, the minister of information, defended the temporary discount on Monday during a media chat with senior editors and journalists, insisting that the measure was designed to ease the financial burden on Nigerians without reinstating the petrol subsidy.

“The NNPC has looked at it and said we are making this much profit. Why can’t we forgo some of the profit that we are making, so that Nigerians will have some form of cushioning?” Idris said.

Idris explained that NNPC Limited had decided to surrender part of its retail profits to reduce the impact of higher petrol prices on consumers.

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He added that President Bola Tinubu’s administration remained committed to its economic reform programme while pursuing measures to improve living conditions and expand access to affordable energy alternatives.

“Our approach is to consolidate the gains of these reforms, expand affordable energy alternatives, strengthen domestic production and create the conditions for sustainable reductions in the cost of living,” he said.