The International Monetary Fund (IMF) has urged Nigeria not to restore a broad-based petrol subsidy, recommending targeted financial assistance and social protection programmes to shield vulnerable households from rising energy costs.
Gatekeepers News reports that the fund warned that blanket fuel subsidies are expensive, disproportionately benefit higher-income consumers and could increase fiscal pressures at a time when governments are facing rising borrowing costs.
Rodrigo Valdés, director of the IMF’s Fiscal Affairs Department, spoke during a press briefing on the fund’s Fiscal Monitor at the 2026 annual meetings of the IMF and World Bank in Bangkok, Thailand, on Wednesday.
Valdés was responding to concerns that allowing energy prices to reflect market conditions could increase transportation costs, fuel inflation and deepen poverty in Nigeria, particularly as calls grow for the government to restore petrol subsidies ahead of an election year.
“Protecting people is not the same as protecting the price of fuels,” Valdés said.
He explained that fuel subsidies and other measures preventing domestic prices from fully adjusting to energy shocks had cost countries between one and 1.5 per cent 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.
According to Valdés, governments should prioritise social safety nets and use household data to identify people who genuinely need assistance instead of subsidising fuel prices for everyone.
“There are better tools to deal with this,” he added.
The Federal Government recently announced a 30-day petrol discount at Nigerian National Petroleum Company (NNPC) Limited retail outlets, with public transport operators given priority, to ease the impact of rising fuel prices.
Taiwo Oyedele, Minister of Finance, said NNPC retail outlets would sell petrol at cost by foregoing their retail profit margin. He described the measure as temporary relief rather than a return to the petrol subsidy regime.
The government also proposed negotiating a ceiling of N1,350 per litre for petrol’s ex-gantry or landing cost, subject to monthly reviews.
IMF Recommends Redirecting Subsidy Savings to Vulnerable Households
The IMF also called for targeted interventions to reduce the impact of higher fuel prices on transportation and other essential expenses.
Davide Furceri, a division chief in the fund’s Fiscal Affairs Department, said governments could redirect some of the resources spent on blanket fuel subsidies towards measures that directly benefit vulnerable consumers.
“For example, you mentioned transportation costs. Yeah, gasoline could go up, and perhaps bus fees may be subsidised in a way that is a much better policy at the end of the day than just a blanket subsidy for everybody,” Furceri said.
He suggested other options, including school feeding programmes, geographically targeted assistance and support for vulnerable farmers.
Furceri acknowledged that some countries lacked comprehensive household registries and digital payment systems needed to identify eligible beneficiaries and deliver assistance efficiently.
However, he said governments could adopt alternative arrangements in the short term while developing stronger systems for administering targeted support.
He stressed that such interventions should be limited, targeted and temporary.
IMF Says Fuel Subsidies Distort Energy Demand
Valdés further warned that fuel subsidies could intensify global energy pressures by preventing consumers from adjusting their demand when supplies become constrained.
“When you subsidise, you don’t allow, at the end of the day, demand to adjust,” he said.
“And reality is that we have less fuels in the world economy. That means that someone else has to adjust more, and the market produces a higher price for that.”
The IMF official maintained that fuel subsidies impose significant fiscal costs, often benefit wealthier consumers disproportionately and can create spillover effects across the global economy.
The fund’s position is that governments should protect vulnerable people directly rather than suppressing fuel prices for all consumers, particularly during periods of energy market disruption.
