NIGERIA: The International Monetary Fund (IMF) has advised the Federal Government against restoring a broad-based petrol subsidy, recommending targeted assistance for vulnerable households to cushion the impact of rising energy costs.
However, Nigerian economists have cautioned that the government must scrutinise the IMF’s recommendations and demonstrate that savings from subsidy removal are translating into improved living conditions for citizens.
The debate comes amid renewed calls for the reinstatement of petrol subsidy ahead of the 2027 general elections, with the African Democratic Congress (ADC) presidential candidate, Atiku Abubakar, proposing its return, while the Federal Government maintains that there is no going back on the policy.
The IMF, which has consistently advocated subsidy removal, argued on Wednesday that blanket fuel subsidies are expensive, often disproportionately benefit higher-income consumers and could worsen fiscal pressures amid rising borrowing costs.
Rodrigo Valdés, director of the IMF’s Fiscal Affairs Department, disclosed the position during a press briefing on the fund’s Fiscal Monitor at the 2026 annual meetings of the IMF and World Bank in Bangkok, Thailand.
He was responding to a question on how the fund could recommend allowing energy prices to reflect scarcity when rising fuel prices in Nigeria could increase transportation costs, fuel inflation and deepen poverty, particularly as the government faces mounting calls to restore petrol subsidy ahead of the election year.
“Protecting people is not the same as protecting the price of fuels,” Valdés said.
He explained that fuel subsidies and other measures preventing prices from adjusting fully to energy shocks had cost countries between one and 1.5 per cent of 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.
Valdés recommended that governments deploy social safety nets and household data to identify people who genuinely need assistance instead of maintaining blanket subsidies.
“There are better tools to deal with this,” he said.
‘We should not take IMF advice hook, line and sinker’
An economist, Professor Ndubisi Nwokoma, has urged the Federal Government to critically examine IMF policy recommendations rather than implement them unquestioningly, insisting that Nigerians’ welfare must remain central to economic decision-making.
Nwokoma acknowledged that removing fuel subsidy could improve public finances and promote fiscal sustainability but said the government must demonstrate how the resulting savings are being used to improve living standards and ease the hardship facing ordinary Nigerians.
Speaking on the implications of the IMF’s recommendations for Nigeria, he argued that although subsidy removal was not necessarily wrong, the policy was not compulsory and its implementation and management of the proceeds remained major concerns.
“There is nothing fundamentally wrong with removing the subsidy. However, it is not compulsory that it must be removed. Some countries, including the United States and countries in the European Union, maintain different forms of subsidies to support their economies and citizens,” he said.
According to him, the critical question is not merely whether subsidies should be removed but whether the savings are being managed transparently and converted into tangible benefits for the population.
He said Nigerians had continued to experience worsening economic conditions despite the removal of fuel subsidy, raising questions about the effectiveness of government expenditure and the distribution of the financial gains from the policy.
“The problem is the management of the process. If you remove subsidies, we need to examine the consequences for public finance and determine how ordinary Nigerians will benefit. I do not think that aspect was adequately addressed,” Nwokoma said.
He criticised what he described as the high cost of governance and continued government spending on projects and items he considered unnecessary at a time when households were battling rising living costs.
The economist argued that resources were being transferred from the private sector to the public sector without sufficient evidence that the money was being used efficiently or producing meaningful improvements in citizens’ welfare.
He maintained that additional government revenue from subsidy removal would have limited value if public expenditure remained wasteful and failed to stimulate economic growth or alleviate poverty.
“The ordinary man is getting poorer, while the public sector is getting richer. The money is not trickling down to the people. That is the problem,” he said.
Nwokoma also faulted the IMF for concentrating on subsidy removal without placing sufficient emphasis on how governments should manage the resulting savings.
He argued that the international financial institution should go beyond recommending policy changes to examine the transparency, accountability and effectiveness of public spending.
“If you say a subsidy should be removed, you should go further and ask: now that it has been removed, what is the government doing with the extra money it is collecting? How will that translate into improving the welfare of the people?” he asked.
He stressed that Nigeria should not automatically reject every IMF recommendation but should assess each proposal against the country’s economic realities and development priorities.
“The IMF may be right, but it is not completely right. We need to interrogate its advice rather than take whatever it says hook, line and sinker. We should examine the recommendations, determine what works for us and implement policies that serve our national interest,” Nwokoma said.
He added that meaningful economic reform must be accompanied by responsible governance, prudent public spending and clear evidence that policy decisions are improving the lives of Nigerians.
CPPE backs subsidy removal, warns against reversal
The Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, told Daily Trust that the IMF’s position was appropriate and consistent with his broad support for the country’s economic direction.
Yusuf said the Federal Government had taken far-reaching decisions following the removal of fuel subsidy, which he said had produced positive effects on the economy.
He expressed reservations about calls for the reinstatement of the subsidy, arguing that the country was already counting the gains of the policy.
He urged Nigerians to support the reform and cautioned against interpreting the recent fuel discount initiative as a return to subsidy.
“CPPE maintains that the removal of the previous petroleum subsidy was a necessary structural reform. Reinstating a broad-based consumption subsidy would recreate serious fiscal vulnerabilities and consequential distortions in the economy,” he said.
According to him, restoring the subsidy would be fiscally unsustainable, particularly in an economy facing substantial infrastructure deficits, debt-service commitments and competing development priorities.
However, Yusuf said a limited and temporary intervention should not automatically be interpreted as a deterioration in policy credibility.
“Investors are principally concerned about policy predictability, market access, commercial viability, fiscal sustainability and the protection of legitimate investments. These fundamentals need not be compromised by a narrowly targeted emergency relief measure,” he said.
He noted that the private sector remained the dominant participant in the downstream petroleum market.
Yusuf added that the current initiative need not undermine investor confidence, provided the government did not impose commercially unviable prices, discriminate against private operators or introduce restrictions that distort the market.
Expert urges government to cushion hardship
Another expert, Robert Femi, argued that reinstating fuel subsidy was no longer feasible, suggesting that those advocating its return for political reasons might have ulterior motives that would not benefit the country.
“We have all seen the gains since its implementation, though it comes with pains which will reduce in the long run,” he said.
However, Femi urged the government to humanise the implementation of subsidy removal in response to persistent public complaints about its effects on living costs.
His position highlights the tension between maintaining fiscal reforms and addressing the immediate economic difficulties confronting households.
NLC demands reversal of IMF-backed policy
The Nigeria Labour Congress (NLC), meanwhile, has maintained its opposition to subsidy removal, describing the IMF-backed policy as anti-people.
The labour union has argued that the policy failed to deliver the promised savings and increased local refining capacity, insisting that it should be reversed or significantly reviewed.
NLC President Joe Ajaero described the IMF and the World Bank as “twin forces in economic mischief” promoting what he called harsh and unworkable economic policies.
He also criticised the IMF’s position that subsidy removal was a domestic decision, describing the claim as cynical and disingenuous.
“They must remove their knees from our necks so we can breathe,” Ajaero said.
The contrasting positions of the IMF, Nigerian economists and organised labour underscore the continuing disagreement over whether the country’s economic priorities should centre on sustaining subsidy removal, restoring broad-based relief or developing targeted interventions to protect vulnerable citizens.
While the IMF insists that blanket subsidies place excessive pressure on public finances and often benefit wealthier consumers disproportionately, critics argue that the success of any reform must ultimately be measured by its impact on household welfare, public accountability and the living standards of ordinary Nigerians.
