The International Monetary Fund (IMF) has advised Nigeria against restoring a broad-based petrol subsidy, recommending targeted financial assistance and social protection programmes to cushion vulnerable households against rising energy costs.
The fund warned that blanket fuel subsidies are fiscally expensive, disproportionately benefit higher-income consumers in many cases and can worsen pressure on public finances amid rising borrowing costs.
Rodrigo Valdés, director of the IMF’s Fiscal Affairs Department, made the remarks on Wednesday 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.
Valdés was responding to a question about the impact of allowing energy prices to reflect supply constraints, particularly in Nigeria, where higher petrol prices can increase transportation costs, fuel inflation and deepen poverty amid calls to restore 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 measures preventing domestic energy prices from adjusting fully to global shocks had cost countries between one and 1.5 per cent of gross domestic product 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.
Valdés urged governments to rely on social safety nets and household data to identify people most in need of support.
“There are better tools to deal with this,” he added.
Government Introduces Temporary Petrol Relief
The IMF’s position comes as the Federal Government recently announced a 30-day petrol discount at Nigerian National Petroleum Company (NNPC) Limited retail stations, with priority given to public transport operators.
Minister of Finance Taiwo Oyedele said NNPC Retail would sell petrol at cost by foregoing its retail profit margin, describing the measure as temporary relief rather than a return to the petrol subsidy regime.
The government also proposed negotiating a ceiling of ₦1,350 per litre on petrol’s ex-gantry or landing cost, subject to monthly reviews.
IMF Recommends Targeted Support for Vulnerable Households
Davide Furceri, a division chief in the IMF’s Fiscal Affairs Department, said governments could redirect some of the resources previously spent on broad-based subsidies towards targeted assistance for vulnerable consumers.
He cited transportation costs as an example, suggesting that governments could support public transport fares rather than subsidise 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 identified school feeding programmes, geographically targeted assistance and support for vulnerable farmers as possible alternatives.
Furceri acknowledged that some countries lacked comprehensive household registries and digital payment systems needed to deliver targeted assistance effectively.
However, he said governments could adopt alternative short-term approaches while developing stronger systems for identifying beneficiaries and distributing support.
He recommended that assistance should be limited, targeted and temporary.
IMF Warns Subsidies Can Intensify Global Energy Pressures
Valdés also argued that broad-based fuel subsidies could intensify global energy pressures by preventing demand from adjusting 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 can strain public finances, disproportionately benefit better-off consumers and create spillover effects across the global economy.
The fund’s recommendations centre on allowing energy prices to reflect market conditions while using targeted, temporary support to protect vulnerable households from the effects of higher fuel and transportation costs.
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