IMF Advises Nigeria Against Return to Blanket Fuel Subsidy

Nigeria should direct assistance towards households most affected by rising fuel prices rather than reinstate blanket petrol subsidies, an International Monetary Fund official said on Wednesday.

Rodrigo Valdés, director of the IMF’s Fiscal Affairs Department, said broad fuel subsidies were costly and could prevent consumers from adjusting their energy use when global supplies tightened.

Speaking at the IMF and World Bank Group annual meetings in Bangkok, Valdés was responding to a question about calls to restore petrol subsidies in Nigeria ahead of elections.

He acknowledged the political difficulties governments face when fuel prices increase but said the impact of higher energy costs should be explained to the public.

“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,” Valdés 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 you spend in the subsidies channeled towards more vulnerable people.”

He said governments would be better off directing some of the money spent on subsidies towards vulnerable people.

Rather than keeping petrol prices low for everyone, authorities could support specific groups facing higher transport costs, he said.

“Yeah, gasoline could go up and perhaps bus fees may be subsidised in a way,” Valdés said. “That is a much better policy at the end of the day than just a blanket subsidy for everybody.”

Nigeria has faced renewed calls for relief as higher global energy costs put pressure on domestic petrol prices.

The Nigerian government recently announced a 30-day petrol discount at Nigerian National Petroleum Company Limited retail outlets, with public transport operators given priority.

Finance Minister Taiwo Oyedele said NNPC retail would sell petrol at cost by foregoing its retail profit margin, describing the measure as temporary relief rather than a return to subsidies.

The government has also proposed negotiating a ceiling of 1,350 naira per litre on petrol’s ex-gantry or landing cost, subject to monthly reviews.

Valdés warned that fuel subsidies could intensify pressure on global energy markets by keeping demand high when supplies were limited.

“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.”