IMF to FG: Don’t Reinstate Fuel Subsidy
POLITICS DIGEST – The International Monetary Fund (IMF) has advised the Federal Government against reinstating broad-based petrol subsidies, recommending targeted financial assistance to vulnerable households to cushion the effects of rising energy prices.
The fund warned that blanket fuel subsidies are costly, often disproportionately benefit higher-income consumers and could worsen Nigeria’s fiscal challenges amid rising borrowing costs.
Rodrigo Valdés, Director of the IMF’s Fiscal Affairs Department, made the position known 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.
Valdés was responding to concerns that allowing energy prices to reflect market conditions could increase transportation costs, fuel inflation and deepen poverty in Nigeria, particularly as calls for a return to petrol subsidies intensify ahead of the next election cycle.
“Protecting people is not the same as protecting the price of fuels,” he said, arguing that governments should focus on supporting vulnerable citizens rather than keeping energy prices artificially low.
According to Valdés, fuel subsidies and other measures that prevent domestic energy prices from fully reflecting external shocks have cost countries between one and 1.5 per cent of gross domestic product (GDP) 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.
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He explained that broad-based subsidies frequently benefit wealthier households more because they tend to consume more fuel, while placing additional pressure on government finances and limiting resources available for essential public services.
Instead, the IMF official recommended strengthening social safety nets and using reliable household data to identify citizens most affected by rising energy costs.
“There are better tools to deal with this,” Valdés said, advocating targeted interventions that would provide relief to vulnerable households without imposing the substantial fiscal burden associated with universal fuel subsidies.
The IMF’s position comes as the Federal Government seeks to mitigate the impact of rising petrol prices on households and businesses.
The government recently announced a 30-day petrol discount at Nigerian National Petroleum Company Limited (NNPC Ltd) retail outlets, with priority given to public transport operators, as part of efforts to ease transportation costs and reduce the burden on commuters.
The debate over fuel subsidies remains a major economic and political issue in Nigeria following the removal of the longstanding petrol subsidy in May 2023. The policy change was intended to reduce government expenditure and free up resources for other development priorities, but higher fuel prices have continued to put pressure on household incomes, transport fares and business operating costs.
The IMF’s latest recommendation underscores the need for the government to balance fiscal sustainability with measures that protect low-income households from the effects of rising living costs.
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