Isaac Samuel
The International Monetary Fund (IMF) has cautioned the Federal Government against restoring a blanket petrol subsidy, recommending targeted assistance for vulnerable Nigerians to cushion the impact of rising energy costs.
The fund said broad-based fuel subsidies were costly, placed additional pressure on public finances and often benefited higher-income consumers disproportionately.
Rodrigo Valdés, director of the IMF’s Fiscal Affairs Department, gave the advice during a press briefing on the fund’s Fiscal Monitor at the 2026 annual meetings of the IMF and World Bank Group in Bangkok, Thailand, on Wednesday.
His comments came amid growing calls for the restoration of petrol subsidy ahead of the 2027 general elections, as rising fuel prices continue to raise concerns about transportation costs, inflation and the cost of living.
Valdés was responding to a question about how governments could allow energy prices to reflect supply constraints when higher fuel prices in Nigeria could increase transport fares, worsen inflation and deepen poverty.
“Protecting people is not the same as protecting the price of fuels,” he said.
According to him, fuel subsidies and other measures preventing prices from adjusting fully to energy shocks cost countries between one and 1.5 per cent of gross domestic product (GDP) in 2026.
He said such interventions were fiscally expensive and could disproportionately benefit wealthier households because they generally consume more fuel.
“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,” Valdés said.
The IMF official urged governments to rely on social safety nets and household data to identify people who genuinely need assistance rather than subsidising fuel prices for everyone.
“There are better tools to deal with this,” he said.
The recommendation comes as the Federal Government rolls out temporary measures to ease the impact of rising petrol prices on households and transport operators.
The government recently announced a 30-day petrol discount at Nigerian National Petroleum Company Limited retail stations, with priority for public transport operators.
Taiwo Oyedele, minister of finance, said NNPC retail stations would sell petrol at cost by foregoing their retail profit margin, describing the intervention as temporary relief rather than a return to petrol subsidy.
The government also proposed negotiating a ceiling of N1,350 per litre on petrol’s ex-gantry or landing cost, subject to monthly reviews.
IMF recommends transport support, school feeding
The fund also urged the Federal Government to consider targeted interventions to reduce the impact of higher fuel prices on transportation and other essential household expenses.
Davide Furceri, a division chief in the IMF’s Fiscal Affairs Department, said governments could redirect some of the resources spent on blanket subsidies towards vulnerable consumers.
He argued that supporting specific groups affected by rising energy costs would be more effective than subsidising petrol for all 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 also recommended alternatives such as 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 beneficiaries and deliver assistance effectively.
However, he said governments could introduce alternative arrangements in the short term while developing stronger systems for providing targeted support.
He stressed that such interventions should be limited, targeted and temporary.
Explaining the broader economic implications of fuel subsidies, Valdés said keeping prices artificially low could prevent consumers from adjusting their demand when global fuel supplies were constrained.
“When you subsidise, you don’t allow, at the end of the day, demand to adjust,” he said.
He added that reduced fuel availability in the global economy meant demand had to adjust somewhere, and preventing prices from reflecting scarcity in one market could push prices higher elsewhere.
“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.”
Valdés maintained that blanket fuel subsidies were not only expensive and regressive but could also create spillover effects across the global economy.
The IMF’s recommendations present a policy challenge for Nigeria as the government seeks to cushion households against rising energy costs while managing public expenditure and demands for broader relief ahead of the 2027 elections.
