IMF urges FG to recover N700bn fuel subsidy from NNPC

The International Monetary Fund (IMF) on Wednesday said for Nigeria to sustain economic reform momentum and safeguard fiscal stability, the federal government must fully recover fuel subsidy savings currently withheld by the Nigerian National Petroleum Company Limited (NNPCL).

In its 2025 Article IV consultation report released on Wednesday, the IMF emphasised that securing these funds—estimated at N700 billion per month, or around two percent of GDP annually—is essential for maintaining a neutral fiscal stance and financing critical development spending.

“Ensuring that the fuel subsidy savings accrue to the government would yield the proposed neutral stance—the full-year savings are estimated at 2 percent of GDP,” the IMF stated.

While Nigeria officially ended the fuel subsidy in 2023, the Fund noted that the savings have yet to fully materialise in the federal budget due to opacity in oil revenue remittances by NNPC. It warned that without a redirection of these funds into the public treasury, the government will be forced to make difficult adjustments elsewhere.

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“If the savings are not realised starting H2-2025,” the IMF warned, “and given that tax policy reforms under consideration are not expected to deliver significant revenue gains in 2025, adjustment would have to come from the expenditure side (0.6 percent of GDP).”

That adjustment, the Fund said, must come with careful prioritisation: “Staff recommend prioritising adjustments to recurrent spending to protect growth-enhancing investments, while accelerating the delivery of cash transfers to assist the poor under the cash transfer program.”

Capital spending, which the Fund acknowledged as key to infrastructure and job creation, will also face pressure, and will need to be “rationalised to preserve critical projects with the highest contribution to growth and job creation.”

In a worse-case scenario, where fuel subsidy funds remain off-budget and other revenues underperform, the IMF warned that “further adjustment will be needed”, even as the government is encouraged to “look for opportunities to advance or pre-commit to revenue mobilisation measures to create fiscal space while safeguarding debt sustainability.”

The IMF’s recommendations come at a delicate time for Africa’s most populous country, which is struggling to balance much-needed spending on infrastructure and poverty alleviation against high debt servicing costs and limited revenue generation.

The Fund backed a neutral fiscal stance for 2025—neither expansionary nor contractionary—to help stabilise the economy, but warned that expected gains hinge largely on recovering subsidy savings and containing wasteful recurrent spending.

But it is concerned about how the anticipated delay in revenue from ongoing tax reforms would add to the country’s fiscal urgency.

“While those reforms may yield medium-term benefits, the Fund noted they are “not expected to deliver significant revenue gains in 2025.”