The International Monetary Fund (IMF) has warned the Federal Government against reintroducing blanket petrol subsidies, urging it to adopt targeted financial assistance and social protection programmes to shield vulnerable Nigerians from rising fuel prices.
The fund argued that broad-based fuel subsidies impose a significant burden on public finances, disproportionately benefit wealthier households and risk worsening Nigeria’s fiscal challenges at a time when borrowing costs remain high.
Rodrigo Valdés, director of the IMF’s Fiscal Affairs Department, made the position clear on Wednesday during a press briefing on the fund’s Fiscal Monitor at the 2026 IMF-World Bank annual meetings in Bangkok, Thailand.
Valdés was responding to questions about the IMF’s recommendation that energy prices should reflect market realities, despite concerns that rising petrol prices could increase transportation costs, fuel inflation and push more Nigerians into poverty.
The issue has gained renewed attention amid calls for the Federal Government to restore petrol subsidies ahead of an election year.
“Protecting people is not the same as protecting the price of fuels,” Valdés said, stressing that governments should focus on cushioning the effects of higher energy costs on households rather than keeping fuel prices artificially low for everyone.
According to the Chilean national who has just recently been appointed IMF FAD Director, fuel subsidies and other policies that prevent energy prices from adjusting to supply shocks cost countries between one and 1.5 per cent of gross domestic product in 2026.
He described such interventions as fiscally expensive, adding that their benefits often favour higher-income households because wealthier consumers typically purchase 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,” he said.
Rather than subsidising petrol across the board, Valdés urged governments to strengthen social safety nets and use household-level data to identify those most in need of financial support.
“There are better tools to deal with this,” he added.
The IMF’s position comes as the Federal Government explores temporary measures to ease the burden of rising petrol prices on Nigerians without returning to a general fuel subsidy regime.
The government recently announced a 30-day petrol discount at Nigerian National Petroleum Company Limited retail outlets, with public transportation operators prioritised under the initiative.
The Minister of Finance, Taiwo Oyedele, said NNPC retail stations would sell petrol at cost by foregoing their retail profit margins.
He described the measure as a temporary relief initiative rather than a reversal of the government’s decision to end petrol subsidies.
The government has also proposed negotiating a ceiling of N1,350 per litre on petrol’s ex-gantry or landing cost, subject to monthly reviews.
The IMF, however, has emphasised the need for carefully designed interventions that directly address the effects of rising fuel prices on transportation and other essential household expenses.
IMF Recommends Transport Support, School Feeding
Davide Furceri, a division chief in the IMF’s Fiscal Affairs Department, said governments could redirect part of the resources spent on blanket fuel subsidies towards targeted programmes that provide greater benefits to vulnerable households.
He suggested that governments could subsidise public transportation fares instead of reducing petrol prices 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 schemes, geographically targeted financial assistance and support for vulnerable farmers as alternative measures to protect households from the effects of rising energy costs.
Such interventions, he explained, would enable governments to direct limited public resources towards people and communities most exposed to the impact of higher fuel prices.
Furceri acknowledged, however, that implementing targeted assistance could prove difficult in countries without comprehensive household databases, reliable beneficiary registries and digital payment systems.
Despite these challenges, he said governments could adopt alternative mechanisms to deliver short-term support while developing stronger systems to identify beneficiaries and improve the distribution of social assistance.
He stressed that relief measures should be limited, targeted and temporary to ensure that support reaches the intended beneficiaries without placing additional pressure on public finances.
Aside the financial implications, Valdés warned that keeping fuel prices artificially low could aggravate pressure on global energy supplies by discouraging consumers from adjusting their consumption when supplies become constrained.
According to him, higher energy prices play an important role in balancing demand with available supplies, particularly when disruptions reduce the amount of fuel available in the global economy.
“When you subsidise, you don’t allow, at the end of the day, demand to adjust,” he said.
Valdés explained that when global fuel supplies decline, consumption must adjust accordingly. Suppressing prices through subsidies, he argued, prevents that adjustment and can place additional pressure on the market.
“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 said.
The IMF maintained that blanket fuel subsidies are not only expensive and often regressive but can also distort consumption patterns and create wider economic consequences.
Its position reinforces the fund’s recommendation that governments should prioritise targeted, temporary and fiscally sustainable support for vulnerable households instead of broadly suppressing energy prices.
For Nigeria, where petrol prices have significant implications for transportation costs, food prices and the overall cost of living, the debate centres on how to protect households from rising expenses without placing unsustainable demands on public finances.
The IMF’s message is that relief should focus on the people who need it most, rather than subsidising fuel consumption across the entire economy.
