IMF warns Nigeria against subsidy return

The International Monetary Fund has warned Nigeria against reinstating blanket petrol subsidies amid mounting political pressure ahead of the elections, saying the Federal Government should instead prioritise financial assistance to vulnerable households struggling with rising energy costs.

The Director of the IMF’s Fiscal Affairs Department, Rodrigo Valdés, gave the warning on Wednesday during the IMF and World Bank Group Annual Meetings in Bangkok, Thailand.

Responding to a question on growing demands for the restoration of petrol subsidies in Nigeria ahead of the elections, Valdés acknowledged that rising fuel prices could create political difficulties for governments but cautioned that subsidising consumption across the board would impose substantial costs on public finances.

He said, “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.

“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.”

The IMF official maintained that governments could achieve better outcomes by directing limited public resources towards households facing the greatest financial hardship rather than subsidising petrol for all consumers, irrespective of income.

He identified transportation subsidies as a possible alternative to broad fuel price interventions.

• Economic reforms must protect vulnerable Nigerians – Oyedele
• $552m W’Bank grant targets 29m Nigerian children – UBEC
• $1tn economy: Tinubu, Sanwo-Olu back transport reforms

“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,” Valdés said.

His position reflects the IMF’s longstanding argument that universal fuel subsidies place considerable pressure on government finances while delivering greater benefits to wealthier households, which generally consume more petroleum products.

The warning comes amid renewed concerns over petrol affordability in Nigeria following increases in international energy prices and their impact on domestic transportation and household expenses.

In response to the pressure, the Federal Government recently introduced a 30-day petrol price discount at Nigerian National Petroleum Company Limited retail outlets, with public transport operators identified as priority beneficiaries.

The Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, explained that the arrangement would require NNPC Retail to temporarily surrender its profit margin and sell petrol at cost to ease the financial burden on consumers.

Oyedele, however, maintained that the intervention was a short-term measure and did not amount to reinstating the petrol subsidy regime.

Beyond the fiscal implications, Valdés warned that fuel subsidies could aggravate global supply pressures by discouraging consumers from reducing demand when petroleum products become scarce.

According to the IMF, maintaining artificially low fuel prices during supply disruptions could increase consumption pressures and contribute to higher international prices.