The Federal Government’s petrol price relief package could cost Nigeria up to 0.4 per cent of its Gross Domestic Product, equivalent to about N1.77tn, as concerns mount over the intervention’s fiscal implications ahead of the 2027 general elections.
BMI, a Fitch Solutions company, disclosed this in its latest report, titled ‘Fuel Discount Mechanism Raises Macro Risks in Nigeria’, which was obtained by The PUNCH on Sunday.
The research firm warned that the intervention could worsen Nigeria’s fiscal position, weaken government revenue and trigger renewed pressure on the naira if sustained beyond its intended period.
It stated, “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.”
An analysis by The PUNCH, based on the National Bureau of Statistics’ 2025 nominal GDP figure of approximately N441.5tn, showed that the estimated cost of the petrol relief package could range from N883bn to N1.77tn.
The calculation provides an indicative naira value of BMI’s projection using the 2025 GDP figure, rather than a cost estimate directly published by the research firm.
The report followed the 8 October announcement by the Minister of Finance, Taiwo Oyedele, of a 30-day intervention requiring NNPC retail outlets to sell petrol at cost without earning profit margins.
The government also proposed a wholesale petrol price benchmark of N1,350 per litre, under which refiners and importers would absorb costs above the threshold and recover their losses when crude oil prices decline.
Other measures include forward crude sales to domestic refineries, the establishment of a national strategic fuel reserve, expanded cash transfers and additional support for vulnerable households.
Despite the government’s initial 30-day timeline, BMI projected that the petrol discount mechanism could remain in place for approximately six months, extending into the first quarter of 2027.
It stated, “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 projection partly reflects expectations that global crude oil prices could decline following a possible agreement between the United States and Iran in the first quarter of 2027.
BMI also maintained its forecast that Nigeria’s budget deficit would widen from 1.7 per cent of GDP in 2025 to 3.3 per cent in 2026, citing anticipated fiscal pressures ahead of the January 2027 elections.
Although the firm acknowledged that the intervention differed significantly from Nigeria’s previous petrol subsidy regime, it warned that extending the arrangement could create fresh economic imbalances.
Under the former subsidy system, the government effectively absorbed the difference between regulated pump prices and market costs, exposing public finances to rising crude prices and exchange rate depreciation.
The current arrangement instead requires NNPC to forgo its retail profit margin while allowing pump prices to reflect underlying market costs.
BMI stated, “We see significant macroeconomic risks if the NNPC fuel discount mechanism is not removed and instead becomes entrenched.”
It warned that prolonged implementation could reduce NNPC’s remittances to government accounts, limiting resources available for infrastructure development, public services and security.
The firm also cautioned that weaker fiscal credibility could increase borrowing costs and worsen Nigeria’s debt-service burden, while reduced retail margins could constrain investment in the downstream petroleum sector.
Beyond the fiscal implications, BMI identified potential foreign exchange risks, warning that discounted petrol prices could encourage cross-border smuggling if Nigerian fuel becomes significantly cheaper than supplies in neighbouring countries.
According to the report, increased smuggling could raise fuel import requirements and demand for foreign exchange, potentially triggering dollar shortages and renewed pressure on the naira.
It added that concerns over a possible reversal of economic reforms could discourage foreign portfolio investment, reducing an important source of dollar inflows.
The report further identified potential risks to the Dangote Refinery and its planned initial public offering, noting that increased government intervention in petroleum pricing could weaken investor confidence.
BMI warned that requiring suppliers to sell fuel at cost without a clear mechanism for recovering forgone profits could undermine profitability, while tighter price controls could encourage refiners to prioritise exports over domestic sales.
However, the firm described the proposed forward sale of crude oil to domestic refineries as a more promising measure for improving local fuel supply, despite previous implementation challenges.
It cautioned that failure to withdraw the temporary intervention could turn the relief package into a prolonged fiscal burden, with consequences for government revenue, foreign exchange stability and investor confidence.
The Federal Government earlier said the petrol discount introduced by the Nigerian National Petroleum Company Limited’s retail arm is not a return of fuel subsidy, insisting that no public funds are being used to reduce prices at its filling stations.
In a statement, the government said the discount was funded by NNPC Retail Limited’s decision to reduce its retail profit margin, rather than through payments from the federal budget or the Federation Account.