Experts warn as IMF offers fresh advice on subsidy

The International Monetary Fund (IMF) on Wednesday advised the Nigerian government not to restore the broad petrol subsidy.

The Bretton Woods institution instead asked the government to deploy targeted support for vulnerable households to cushion the impact of rising energy costs.

**Daily Trust **reports that the latest advisory is coming against the backdrop of the ongoing debate over the return of fuel subsidy as being proposed by some presidential candidates ahead of Nigeria’s 2027 general elections.

While the Federal Government has insisted there is no going back on the removal of subsidy from petroleum products, the African Democratic Congress (ADC) presidential candidate, Atiku Abubakar, had proposed a return to subsidy.

The debate over whether or not to return the subsidy has dominated discourse in the ongoing electioneering campaign.

However, the IMF, which had always advocated for subsidy removal, argued in its intervention on Wednesday that blanket petrol subsidies were expensive, often benefited higher-income consumers disproportionately and could worsen fiscal pressures amid rising borrowing costs.

Rodrigo Valdés, director of the IMF’s fiscal affairs department, made the disclosure during a press briefing on the fund’s fiscal monitor at the 2026 annual meetings of the IMF and World Bank in Bangkok, Thailand.

His comments followed a question on how the fund could recommend allowing energy prices to reflect scarcity when higher fuel prices in Nigeria could raise transport costs, worsen inflation and deepen poverty, particularly when the government was facing calls to restore petrol subsidy ahead of an election year.

“Protecting people is not the same as protecting the price of fuels,” Valdés said.

He said fuel subsidies or measures preventing prices from adjusting fully to an energy shock had cost countries between 1 percent and 1.5 percent 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 said governments should instead use social safety nets and household data to identify people who need assistance.

“There are better tools to deal with this,” he said.

‘We should stop taking IMF advice hook, line and sinker’

An economist, Professor Ndubisi Nwokoma, urged the Federal Government to critically scrutinise policy recommendations from the IMF rather than implement them unquestioningly, arguing that Nigeria must prioritise the welfare of its citizens when making economic decisions.

Nwokoma said although the removal of fuel subsidy could help improve public finances and promote fiscal sustainability, the government must demonstrate how the savings are being deployed to improve living standards and reduce the economic hardship facing ordinary Nigerians.

Speaking on the implications of the IMF’s recommendations for Nigeria’s economy, Nwokoma maintained that subsidy removal was not necessarily wrong but argued that the manner in which the policy was implemented and the management of its 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.

He explained that the critical issue was not simply whether the government should remove subsidies but whether the resulting savings were being managed transparently and translated into tangible benefits for the population.

According to him, Nigerians have continued to experience worsening economic conditions despite the removal of the 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 the government’s continued expenditure on projects and items he considered unnecessary at a time when households were struggling with 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 while the government might generate additional revenue from subsidy removal, such gains 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 focusing 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 government 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 carefully evaluate 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.

The Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, told Daily Trust that the current position of the Bretton Woods institution was appropriate and reflected his holistic support for the country’s economic direction.

He said the Federal Government had taken far-reaching decisions following the removal of the fuel subsidy, which had had salutary effects on the economy.

He expressed reservations about calls in some quarters for the reinstatement of the subsidy when the country was already counting the gains of the policy.

He urged Nigerians to support the policy and avoid likening the recent fuel discount to the return of fuel subsidy in the country.

He added: “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.

“Such an obligation would be fiscally unsustainable, especially in an economy facing substantial infrastructure deficits, debt-service commitments and competing development priorities.

“However, 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.

“The private sector remains the dominant participant in the downstream petroleum market. Provided that the government does not impose commercially unviable prices, discriminate against private operators or introduce distortive market restrictions, the current initiative need not undermine investor confidence.”

Another expert, Robert Femi, argued that the return of fuel subsidy was no longer feasible in the country, adding that those pushing for its reinstatement for political reasons had ulterior motives that might 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.

He told Daily Trust that the government should consider humanising the face of subsidy removal in view of the persistent outcry by Nigerians against the policy.

Daily Trust recalls that the Nigeria Labour Congress (NLC) had described the IMF-backed subsidy removal as anti-people, arguing that it had failed to deliver the promised savings and local refining, and should be reversed or significantly reviewed.

The President of the NLC, Joe Ajaero, described the IMF and the World Bank as “twin forces in economic mischief” pushing “harsh and unworkable policies”.

He maintained that the IMF’s claim that subsidy removal was a “domestic decision” was “cynical” and “disingenuous”.

He added: “They must remove their knees from our necks so we can breathe.”

____

*Follow us on Twitter at *@thesignalng

Copyright 2026 SIGNAL. Permission to use portions of this article is granted provided appropriate credits are given to * www.signalng.com and other relevant sources.*

The post Experts warn as IMF offers fresh advice on subsidy appeared first on SIGNAL.