Nigeria’s petrol price relief initiative could impose a fiscal burden of up to ₦1.77tn on the economy if maintained for several months, with potential consequences for government revenue, foreign exchange stability and investor confidence, according to BMI, a Fitch Solutions company.
In its latest report, titled ‘Fuel Discount Mechanism Raises Macro Risks in Nigeria’, obtained by Journalists on Sunday, the research firm estimated that the intervention could cost between 0.2 and 0.4 per cent of Nigeria’s Gross Domestic Product.
Using the National Bureau of Statistics’ 2025 nominal GDP estimate of approximately ₦441.5tn, an analysis by Journalists put the projected cost at between ₦883bn and ₦1.77tn. The figures represent a calculation based on BMI’s projections and the GDP data, rather than an amount directly published by the research firm.
BMI warned that a prolonged implementation of the package could weaken public finances and put additional pressure on the naira, particularly if the temporary intervention becomes a long-term policy ahead of the 2027 general elections.
“Although the government has not disclosed the package’s cost, our initial estimates suggest it will amount to around 0.2-0.4 per cent of GDP assuming the measures are removed in early Q2 2027, broadly in line with the pre-election spending increases already embedded in our forecasts.”
The report comes after the Minister of Finance, Taiwo Oyedele, announced the intervention on October 8, including a 30-day arrangement under which retail outlets operated by the Nigerian National Petroleum Company Limited would sell petrol without adding profit margins.
The government also proposed a wholesale petrol price benchmark of ₦1,350 per litre. Under the arrangement, refiners and importers would bear costs exceeding the benchmark and recover the losses when crude oil prices fall.
Additional measures outlined by the government include forward crude oil sales to local refineries, a national strategic fuel reserve, expanded cash transfers and further assistance for vulnerable households.
Despite the government’s initial 30-day timeline, BMI expects the discount arrangement to continue for about six months, potentially lasting until late in the first quarter or early in the second quarter of 2027.
“We expect the discount mechanism to remain in place for roughly six months before being phased out in late Q1 or early Q2 2027.”
The firm’s projection partly rests on expectations that international crude oil prices could decline following a possible agreement between the United States and Iran in the first quarter of 2027.
BMI also retained its forecast that Nigeria’s budget deficit would rise from 1.7 per cent of GDP in 2025 to 3.3 per cent in 2026, citing anticipated spending pressures associated with the period leading up to the January 2027 elections.
Although the research firm distinguished the current arrangement from the country’s former petrol subsidy system, it warned that maintaining the intervention for too long could create fresh economic challenges.
Under the previous subsidy regime, the government covered the gap between regulated petrol prices and prevailing market costs, leaving public finances vulnerable to increases in crude oil prices and exchange rate depreciation.
READ ALSO: Coalition Hails NNPC Petrol Discount, Urges Firms To Support Nigerians
The present mechanism operates differently, requiring NNPC to surrender its retail profit margin while allowing pump prices to reflect underlying market costs.
BMI cautioned that the arrangement could become economically damaging if the government fails to withdraw it as planned.
“We see significant macroeconomic risks if the NNPC fuel discount mechanism is not removed and instead becomes entrenched.”
According to the firm, sustained discounts could reduce the amount NNPC remits to government accounts, leaving fewer resources for infrastructure projects, public services and security.
It further warned that declining confidence in the government’s fiscal policies could raise borrowing costs and increase the burden of servicing Nigeria’s debt. Reduced retail margins could also discourage investment in the downstream petroleum industry.
The report highlighted foreign exchange stability as another area of concern, particularly if discounted petrol prices make supplies in Nigeria considerably cheaper than those available in neighbouring countries.
Such a price difference could encourage cross-border smuggling, increasing domestic fuel demand and the need for imports. BMI warned that the resulting demand for foreign exchange could contribute to dollar shortages and renewed depreciation pressures on the naira.
The firm added that fears of a reversal of economic reforms could discourage foreign portfolio investors, potentially reducing a significant source of dollar inflows.
BMI also raised concerns about the implications of increased government involvement in petroleum pricing for the Dangote Refinery and its planned initial public offering.
It argued that compelling suppliers to sell fuel at cost without providing a clear avenue for recovering lost profits could undermine their earnings. Tighter price controls could also encourage refiners to sell more products abroad rather than supply the domestic market.
However, the research firm viewed the proposed forward sale of crude oil to domestic refineries more favourably, describing it as a potentially effective way to improve local fuel supply despite previous implementation difficulties.
BMI warned that failure to discontinue the temporary relief measures could transform them into a sustained fiscal liability, with wider implications for government revenue, currency stability and investor sentiment.
Meanwhile, the Federal Government has rejected suggestions that the petrol discount represents a return to fuel subsidies, maintaining that the price reduction at NNPC retail outlets does not involve public funds.
In a statement, the government explained that the discount resulted from NNPC Retail Limited’s decision to reduce its retail profit margin, rather than payments from the federal budget or the Federation Account.