The International Monetary Fund (IMF) has advised Nigeria against restoring a blanket petrol subsidy, urging the Federal Government to channel support towards vulnerable citizens as rising energy costs put pressure on households.
Rodrigo Valdés, Director of the IMF’s Fiscal Affairs Department, offered the advice on Wednesday in response to a question about calls to reinstate petrol subsidies in Nigeria ahead of the elections, during the IMF and World Bank Group annual meetings in Bangkok, Thailand.
Valdés recognized the political pressure governments encounter when fuel prices increase but noted that blanket subsidies are expensive and that available resources would be better directed toward supporting those most affected by rising energy costs.
He said, “At the end of the day, it’s very tempting, politically speaking, because it’s not trivial the political effect of the price of oil, of fuels, of gasoline, of diesel.
“But you have to explain that this is a global shock, first. Second, that it’s very, very expensive for the country not to recognize that shock.
“And third, it’s much better to use some of that money that you would spend on the subsidies channeled towards more vulnerable people.”
He also stated that targeted support was preferable to a blanket subsidy, saying, “Yeah, gasoline could go up, and perhaps bus fees may be subsidized in a way. That is a much better policy at the end of the day than just a blanket subsidy for everybody.”
He said governments should focus on targeted support instead of maintaining artificially low fuel prices for all consumers.
The IMF has maintained that broad fuel subsidies are costly and frequently benefit wealthier consumers disproportionately, as they generally use more fuel.
The recommendation comes as Nigeria faces renewed pressure over petrol prices after global energy costs rose.
The Federal Government recently announced a 30-day petrol discount at Nigerian National Petroleum Company Limited retail stations, prioritizing public transport operators to help cushion consumers from the impact.
Finance Minister Taiwo Oyedele said NNPC retail would sell petrol at cost by waiving its retail profit margin, characterizing the measure as temporary relief rather than a reinstatement of petrol subsidy.
The government has also suggested negotiating a ceiling of N1,350 per liter for petrol’s ex-gantry or landing cost, subject to monthly reviews.
Valdés said fuel subsidies could further intensify global energy pressures by preventing demand from adjusting when supplies were limited.
“When you subsidize, you don’t allow, at the end of the day, demand to adjust.
“And reality is that we have fewer 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 also urged governments to introduce targeted measures to lessen the effect of higher fuel prices on transportation costs.
Davide Furceri, a division chief in the fund’s Fiscal Affairs Department, proposed that governments shift resources away from broad-based subsidies and toward assistance for public transport users and other vulnerable groups.
He additionally proposed measures including school feeding programs, geographical targeting, and support for vulnerable farmers.
Furceri acknowledged that some countries did not have the household registries and digital payment systems required to provide targeted assistance effectively but said governments could use alternative approaches as they developed more robust systems.
He advised that support be limited, targeted, and temporary.
