The International Monetary Fund has advised Nigeria against restoring blanket petrol subsidy, urging the Federal Government to channel support towards vulnerable citizens as rising energy costs put pressure on households.
The Director of the IMF’s Fiscal Affairs Department, Rodrigo Valdés, gave the advice on Wednesday while responding to a question about calls for the return of petrol subsidy in Nigeria ahead of elections, during the IMF and World Bank Group annual meetings in Bangkok, Thailand.
Valdés acknowledged the political pressure governments face when fuel prices rise but said blanket subsidies were costly and that available resources would be better used to support people most affected by higher energy prices.
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 recognise that shock.
“And third, it’s much better to use some of that money that would you spend in the subsidies channeled towards more vulnerable people.”
He added that targeted support was preferable to a blanket subsidy, saying: “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.”
He said governments should consider targeted assistance rather than keeping fuel prices artificially low for all consumers.
The IMF has argued that broad-based fuel subsidies are expensive and often disproportionately benefit higher-income consumers, who tend to consume more fuel.
The advice comes as Nigeria faces renewed pressure over petrol prices following increases in global energy costs.
The Federal Government recently announced a 30-day petrol discount at Nigerian National Petroleum Company Limited retail stations, with priority for public transport operators, to cushion the impact on consumers.
Finance Minister Taiwo Oyedele said NNPC retail would sell petrol at cost by foregoing its retail profit margin, describing the measure as temporary relief rather than a return to petrol subsidy.
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.
Valdés said fuel subsidies could also worsen global energy pressures by preventing demand from adjusting when supplies were constrained.
“When you subsidise, you don’t allow, at the end of the day, demand to adjust.
“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 also recommended targeted interventions to cushion the impact of higher fuel prices on transportation costs.
A division chief in the fund’s Fiscal Affairs Department, Davide Furceri, suggested that governments could redirect resources from blanket subsidies towards support for public transport users and other vulnerable groups.
He also suggested measures 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 assistance effectively, but said governments could adopt alternative approaches while developing stronger systems.
He recommended that support should be limited, targeted and temporary.