IMF Urges Nigeria to Reject Broad Petrol Subsidies Amid Rising Fuel Prices

The International Monetary Fund has advised the Nigerian government against restoring widespread petrol subsidies, arguing that targeted social assistance would be a more effective way to protect low-income households from rising energy costs.

According to the fund, blanket fuel subsidies are expensive to maintain, tend to benefit higher-income consumers disproportionately and place additional pressure on government finances, particularly when borrowing costs are increasing.

Rodrigo Valdés, head of the IMF’s Fiscal Affairs Department, made the recommendation on Wednesday during a press briefing on the fund’s Fiscal Monitor at the 2026 annual meetings of the IMF and World Bank in Bangkok, Thailand.

He was responding to questions about the consequences of allowing energy prices to reflect supply shortages, especially in Nigeria, where higher petrol prices can raise transport fares, contribute to inflation and worsen poverty.

The debate has intensified amid calls for the government to restore petrol subsidies before the 2027 general elections.

“Protecting people is not the same as protecting the price of fuels,” Valdés said.

He noted that fuel subsidies and other policies that prevent energy prices from fully adjusting to supply 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 direct support towards people who need it most, rather than maintaining lower fuel prices for the entire population.

“There are better tools to deal with this,” he said.

The Federal Government has recently introduced a 30-day petrol discount at NNPC retail stations, prioritising public transport operators to reduce the impact of rising fuel prices.

Finance Minister Taiwo Oyedele said the Nigerian National Petroleum Company Limited would sell petrol at cost at its retail outlets by giving up its retail profit margins. He described the arrangement as a temporary relief measure, not a return to the petrol subsidy regime.

The government has also proposed negotiating a maximum ex-gantry or landing cost of N1,350 per litre for petrol, with the proposed ceiling subject to monthly reviews.

IMF Backs Targeted Relief Over Universal Fuel Subsidies

The fund also recommended targeted interventions to help vulnerable households cope with higher transportation expenses and other essential costs.

Davide Furceri, a division chief in the IMF’s Fiscal Affairs Department, said governments could use some of the resources currently directed towards blanket subsidies to provide direct assistance to vulnerable consumers.

He suggested that subsidising public transport fares could offer better value than lowering petrol prices for everyone.

“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.

Other options he identified included school feeding programmes, geographically targeted assistance and support for vulnerable farmers.

Furceri recognised that some governments lacked comprehensive household databases and digital payment infrastructure needed to identify eligible beneficiaries and deliver assistance effectively.

Nevertheless, he said temporary alternatives could be introduced while countries worked towards establishing stronger systems for distributing social support.

He stressed that such measures should be targeted, temporary and limited in scope.

IMF Says Subsidies Distort Global Fuel Demand

Valdés also warned that broad fuel subsidies could intensify global energy pressures by discouraging consumers from adjusting their demand when supplies become limited.

He explained that keeping fuel prices artificially low encourages consumption even when less fuel is available worldwide, leaving the market to make larger adjustments and potentially pushing prices higher.

“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.”

He maintained that universal fuel subsidies impose significant fiscal costs, disproportionately benefit wealthier consumers and can produce wider consequences for the global economy.

The IMF’s recommendation places the emphasis on direct, targeted support for vulnerable households rather than broad interventions that keep fuel prices below market levels.

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