IMF Warns Nigeria Against Restoring Petrol Subsidy

The International Monetary Fund has cautioned Nigeria against reestablishing blanket petrol subsidies, urging the federal government to allocate resources to vulnerable citizens amid escalating energy costs that strain household budgets. IMF Fiscal Affairs Department Director Rodrigo Valdés provided this guidance during a recent interview at the IMF and World Bank Group annual meetings in Bangkok, Thailand, in response to inquiries about the potential restoration of petrol subsidies ahead of Nigeria's elections.

Valdés acknowledged the political pressures governments face when fuel prices surge but emphasized that blanket subsidies are financially burdensome and that available resources would be better utilized to aid those most affected by rising energy prices. He explained, "Politically, it’s tempting because the price of oil, fuel, gasoline, and diesel can have a significant impact.

But you need to recognize that this is a global shock, and it’s extremely costly for the country not to acknowledge that shock." Valdés added that using the funds saved from eliminating subsidies to support vulnerable individuals was a more effective approach than providing universal subsidies. He urged governments to consider targeted assistance rather than maintaining artificially low fuel prices for all consumers, noting that broad-based fuel subsidies disproportionately benefit higher-income consumers who typically consume more fuel.

The IMF has previously argued that such subsidies are costly and often benefit wealthier citizens more than those in need. The advice follows increased pressure on Nigeria to address petrol prices following global energy cost hikes. The Nigerian government recently announced a 30-day petrol discount at NNPC retail stations, prioritizing public transport operators to alleviate the impact on consumers.

The Federal Government has also proposed capping petrol's ex-gantry or landing cost at N1,350 per litre, subject to monthly reviews. Valdés warned that fuel subsidies could exacerbate global energy pressures by hindering demand adjustments during supply constraints. "When you subsidize, you don’t allow demand to adjust in the end.

And the reality is that we have less fuel in the world economy, which means that someone else has to adjust more, and the market produces a higher price," he stated. The IMF also recommended targeted interventions to mitigate the effects of higher fuel prices on transportation costs. Davide Furceri, a division chief in the fund’s Fiscal Affairs Department, suggested that governments could redirect resources from blanket subsidies to support public transport users and other vulnerable groups.

He proposed measures such as school feeding programs, geographical targeting, and assistance for vulnerable farmers. Furceri acknowledged that some countries may lack the necessary household registries and digital payment systems to deliver targeted assistance effectively, but stressed that governments could adopt alternative approaches while working to strengthen these systems. He recommended that support be limited, targeted, and temporary.