The International Monetary Fund has cautioned Nigeria against restoring across-the-board petrol subsidies in the face of growing political pressure ahead of elections, recommending targeted support for vulnerable households instead.
Rodrigo Valdés, Director of the IMF’s Fiscal Affairs Department, delivered the warning on Wednesday at the IMF and World Bank Group Annual Meetings in Bangkok, Thailand. Responding to questions about rising calls for the reinstatement of fuel subsidies in Nigeria, Valdés acknowledged that higher energy prices can create political challenges for governments but stressed that universal consumption subsidies carry heavy fiscal costs.
“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 argued that limited public resources deliver better results when directed to households under the greatest financial strain rather than subsidising petrol for every consumer regardless of income. He suggested transport-related measures, such as subsidising bus fares, as a more effective alternative to a blanket 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 budgets while disproportionately benefiting higher-income households, which typically consume more petroleum products.
Domestic Context and Short-Term Response
The warning comes as concerns over petrol affordability have intensified in Nigeria following increases in international energy prices that have raised transport costs and household expenses. In response, the Federal Government recently introduced a 30-day petrol price discount at Nigerian National Petroleum Company Limited retail outlets, with public transport operators designated as priority beneficiaries.
Finance Minister and Coordinating Minister of the Economy Taiwo Oyedele said the arrangement requires NNPC Retail to temporarily forgo its profit margin and sell petrol at cost to ease pressure on consumers. He emphasised that the step is a temporary measure and does not constitute a return to the previous subsidy regime.
Beyond fiscal considerations, Valdés warned that fuel subsidies can intensify global supply pressures by reducing incentives for consumers to cut demand when petroleum products are scarce. Maintaining artificially low prices during supply disruptions, the IMF maintains, can increase consumption and contribute to higher international prices.
