The International Monetary Fund (IMF) has advised Nigeria against restoring broad petrol subsidy, recommending targeted support for vulnerable households to cushion the effect of rising energy prices.
IMF Director Fiscal Affairs Department, Rodrigo Valdés said blanket petrol subsidies were expensive, often benefited higher-income consumers disproportionately and could worsen fiscal pressures amid rising borrowing costs.
He spoke during a press briefing on the fund’s fiscal monitor at the 2026 annual meetings of the IMF and World Bank in Bangkok, Thailand.
The Fund said petrol subsidies were expensive, benefiting mainly higher-income consumers disproportionately and could worsen fiscal pressures amid rising borrowing costs.
His comments followed a question on how the fund could recommend allowing energy prices to reflect scarcity when higher fuel prices in Nigeria could raise transport costs, worsen inflation and deepen poverty, particularly when the government was facing calls to restore petrol subsidy ahead of an election year.
“Protecting people is not the same as protecting the price of fuels,” Valdés said.
The IMF official said fuel subsidies or measures preventing prices from adjusting fully to an energy shock had cost countries between 1 per cent and 1.5 per cent of gross domestic product (GDP) in 2026.
He called on governments across the world to instead use social safety nets and household data to identify people who need assistance. “There are better tools to deal with this,” he said.
The fund’s intervention is in line with its long-standing position on subsidy, as recently canvassed in a recent report.
“Targeted and temporary transfer are the most effective and cost-efficient way to protect poorer households when prices for basics spike,” fund said in its report.
“This approach directly supports those who need it most, preserves scarce fiscal space, and allows high market prices to continue signalling scarcity, encouraging consumers to reduce consumption if they can.”
Division Chief at IMF Fiscal Affairs Department, Davide Furceri, said governments could redirect some of the resources spent on blanket subsidies towards vulnerable 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 suggested alternatives such as school feeding programmes, geographical targeting and assistance for vulnerable farmers.
Furceri acknowledged that some countries lacked household registries and digital payment systems needed to deliver targeted support effectively.
However, he said governments could adopt alternative approaches in the short term while developing stronger systems.
He recommended that assistance should be limited, targeted and temporary. preventing demand from adjusting when supplies were 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 Federal Government had in 2023, announced the end of costly petrol subsidy in the country.
The govermnent said Nigeria’s petrol subsidy system became synonymous with fiscal pressure, allegations of corruption, fuel smuggling and disputes over public expenditure.
Different successive administrations were unable to sustain the arrangement, while the benefits were often criticised for disproportionately favouring those who consumed more petrol.