World Bank Urges Nigeria to Reinstate Petrol Import Licences to Avert Inflation Spike
The World Bank has issued a stark warning to Nigeria, advising the government to urgently reopen the petrol import market and dismantle long-standing trade restrictions. Failure to do so, the bank cautions, could lead to a renewed surge in inflation, driven by tightening supply conditions and escalating global oil prices.
Immediate Risks to Price Stability
In its April 2026 Nigeria Development Update, the World Bank outlined a clear set of policy actions focused on removing supply-side constraints. The report emphasizes that without decisive intervention, inflationary pressures are likely to intensify, despite recent moderation in inflation rates.
The World Bank identified restricted competition in the downstream petroleum sector and trade barriers on critical imports as primary drivers of cost escalation across the Nigerian economy. It specifically recommended reinstating petrol import licences to reintroduce competition in the premium motor spirit market, where pricing pressures have worsened following the suspension of import permits earlier in the year.
Pricing Dynamics and Supply Rigidities
According to the report, the absence of competitive supply has led to a situation where domestic petrol prices have risen above import parity levels. As of March 2026, PMS prices were approximately N1,275 per litre, compared to an estimated import parity price of around N1,122 per litre. This represents a cost differential of roughly 12 per cent.
The World Bank noted that this pricing dynamic reflects broader supply rigidities that continue to transmit external shocks into domestic prices. With global oil prices rising sharply amid geopolitical tensions, the risk of imported inflation has increased significantly.
Impact on Inflation and Broader Economy
Energy-linked components account for about 10 per cent of Nigeria's consumer price index basket, highlighting the direct impact of fuel price movements on overall inflation. The report added that indirect effects, particularly through logistics and food distribution costs, could further amplify inflationary pressures beyond initial estimates.
To mitigate these risks, the World Bank recommended a broad easing of trade restrictions. Specifically, it called for reducing import tariffs and lifting import bans on selected goods, particularly food items and key intermediate inputs used in domestic production. These measures, it argued, would help alleviate supply shortages and reduce production costs across various sectors.
Structural Constraints and Sectoral Performance
The report also proposed replacing the current four per cent Nigeria Customs Service levy with direct budget financing, noting that the levy contributes to higher transaction costs that are ultimately passed on to consumers.
Despite improvements in macroeconomic indicators, the report highlighted persistent structural constraints limiting Nigeria's supply response. While oil production increased to an average of 1.7 million barrels per day in 2025, it remains below budget assumptions, restricting the extent to which higher global prices can translate into fiscal gains.
The oil and gas sector maintained strong momentum in 2025, expanding by 8.5 per cent year-on-year, with most of the increase occurring in the second quarter. Refining activity grew by 14.1 per cent, supported by the ramp-up of operations at the Dangote Petroleum Refinery, the report stated.
Non-oil sectors continue to face significant challenges, with manufacturing and agriculture remaining constrained by inadequate infrastructure, high input costs, and limited access to credit. These factors hinder output expansion and reinforce inflationary trends.
Disinflation Driven by Temporary Factors
Although headline inflation declined to 15.1 per cent in February 2026, down from 26.3 per cent in February 2025, the World Bank cautioned that this disinflation has been driven largely by temporary factors. These include base effects, exchange rate appreciation, and improved food supply conditions.
The World Bank's recommendations underscore the urgent need for Nigeria to address structural issues in its petroleum sector and trade policies to maintain economic stability and prevent a resurgence of inflationary pressures.
