The fund says blanket fuel subsidies are costly and often benefit higher-income consumers disproportionately, recommending temporary assistance for vulnerable households instead.
The International Monetary Fund (IMF) has advised Nigeria against restoring broad petrol subsidies, recommending targeted support for vulnerable households to cushion the effects of rising energy and transport costs.
The fund warned that blanket subsidies could increase pressure on public finances while providing disproportionate benefits to higher-income consumers.
Rodrigo Valdés, director of the IMF’s Fiscal Affairs Department, made the recommendation 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, October 14. He was responding to concerns that allowing fuel prices to reflect supply constraints could raise transport fares, worsen inflation and deepen poverty in Nigeria, particularly as calls grow for the government to restore petrol subsidies ahead of the 2027 general elections.
“Protecting people is not the same as protecting the price of fuels,” Valdés said, arguing that governments should focus on assisting households affected by higher energy costs rather than keeping fuel prices artificially low for everyone.
IMF Explains Why Blanket Subsidies Are Costly
Valdés said fuel subsidies and other measures that prevent energy prices from adjusting fully to supply shocks had cost countries between one and 1.5 per cent of gross domestic product (GDP) in 2026. He argued that such interventions were expensive for governments and often regressive because higher-income households, which generally consume more fuel, could receive a larger share of the benefits.
“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.
The IMF official also warned that keeping fuel prices artificially low could weaken the market response to supply shortages. When prices do not rise to reflect scarcity, consumers have less incentive to reduce demand, potentially intensifying pressure on available supplies and contributing to higher prices elsewhere in the global economy.
“When you subsidise, you don’t allow, at the end of the day, demand to adjust,” Valdés 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.”
IMF Recommends Targeted Support for Vulnerable Nigerians
Rather than restoring a blanket petrol subsidy, the IMF recommended that Nigeria redirect some of the resources towards households and groups most affected by rising energy costs. Valdés said governments could use social safety nets and household data to identify people who require assistance, adding that more targeted interventions would offer a better way to protect vulnerable citizens.
“There are better tools to deal with this,” he said.
Davide Furceri, a division chief in the IMF’s Fiscal Affairs Department, also recommended targeted measures to reduce the effects of higher fuel prices on transport costs. He suggested that governments could support public transport users through bus fare assistance instead of subsidising petrol for all consumers, ensuring that limited public resources reach people who need them most.
“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 highlighted included school feeding programmes, geographically targeted assistance and support for vulnerable farmers. He said such interventions should be limited, targeted and temporary, while governments work towards developing stronger systems for identifying beneficiaries and delivering assistance.
Furceri acknowledged that some countries lacked comprehensive household registries and digital payment systems needed to implement targeted support effectively. However, he said governments could adopt alternative approaches in the short term while building the infrastructure required to deliver assistance more efficiently.
Nigeria Introduces Temporary Petrol Price Relief
The IMF’s recommendation comes as the Federal Government pursues temporary measures to ease the burden of rising petrol prices on Nigerians. The government recently announced a 30-day intervention through Nigerian National Petroleum Company (NNPC) Limited retail stations, with priority given to public transport operators.
Taiwo Oyedele, minister of finance, said NNPC Retail would sell petrol at cost by foregoing its retail profit margin. The government has described the arrangement as temporary relief rather than a return to petrol subsidy, distinguishing it from a policy in which the government broadly absorbs the difference between regulated prices and market costs.
The government has also proposed negotiating a ceiling of ₦1,350 per litre on petrol’s ex-gantry or landing cost, subject to monthly reviews. The proposed ceiling is a separate measure from NNPC Retail’s temporary margin reduction, and its implementation and impact will depend on the final terms agreed with relevant parties.
The measures come amid concerns about the impact of fuel prices on transport fares, food costs and household spending. While lower petrol prices could provide some relief, the extent to which the benefits reach commuters and other consumers will depend on how the arrangements operate and whether savings are passed through to transport and goods prices.
IMF Calls for More Efficient Use of Public Funds
The IMF’s position centres on the need to protect vulnerable households without imposing the wider fiscal costs associated with broad fuel subsidies. The fund argues that targeted assistance, including transport support and social programmes, can help cushion the effects of higher energy prices while allowing demand to respond to supply constraints.
For Nigeria, the challenge is ensuring that any targeted relief reaches those who need it, particularly low-income households, public transport users and vulnerable farmers. The government would also need clear eligibility criteria, reliable delivery systems and transparent reporting to demonstrate whether assistance is reaching its intended beneficiaries.
The IMF’s recommendation does not remove the immediate pressure higher fuel prices place on households and businesses. Instead, it calls for governments to separate the goal of protecting people from the policy of keeping fuel prices low for all consumers, while directing limited public resources towards those most exposed to rising living costs.
