The International Monetary Fund (IMF) has recommended subsidising public transportation, providing assistance to vulnerable farmers and expanding social welfare programmes as alternatives to restoring a blanket petrol subsidy in Nigeria.
The fund said the government could ease the burden of rising fuel prices by directing financial support towards low-income households and other vulnerable groups rather than keeping petrol prices artificially low for all consumers.
The recommendation comes as Nigerians face pressure from rising energy and transportation costs, with renewed calls for the Federal Government to reconsider petrol subsidies ahead of an election year.
IMF explains why petrol subsidy may worsen economic pressure
Rodrigo Valdés, director of the IMF’s Fiscal Affairs Department, outlined the fund’s position on Wednesday during a press briefing on its Fiscal Monitor at the 2026 annual meetings of the IMF and World Bank in Bangkok, Thailand.
He argued that blanket fuel subsidies were expensive, placed additional pressure on public finances and often benefited wealthier consumers disproportionately.
According to Valdés, fuel subsidies and measures preventing energy prices from fully reflecting supply shocks cost countries between one and 1.5 per cent of their gross domestic product (GDP) in 2026.
He said the policy was particularly problematic when governments faced rising borrowing costs and limited financial resources.
“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.
Responding to concerns that higher petrol prices could increase transport fares, worsen inflation and push more Nigerians into poverty, Valdés said governments should focus on protecting people rather than maintaining artificially low fuel prices.
“Protecting people is not the same as protecting the price of fuels,” he said.
He added that social safety nets and household data could help governments identify those who needed financial assistance.
“There are better tools to deal with this,” he said.
IMF proposes transport fare support, school feeding
Davide Furceri, a division chief in the IMF’s Fiscal Affairs Department, recommended redirecting some of the resources used for general fuel subsidies towards targeted interventions.
He said subsidising public transportation could offer more direct relief to commuters affected by rising petrol prices.
“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 proposed school feeding programmes, geographically targeted assistance and support for vulnerable farmers as alternative ways to cushion the effects of higher energy costs.
However, Furceri acknowledged that some countries might struggle to implement targeted programmes because they lacked reliable household databases and digital payment systems.
He said governments could adopt alternative approaches in the short term while developing the infrastructure needed to identify beneficiaries and distribute assistance more efficiently.
He stressed that any support programme should be temporary, limited and directed at those who needed it most.
FG rolls out 30-day petrol discount
The IMF’s recommendations come as the Federal Government introduces temporary measures to reduce the impact of rising petrol prices on Nigerians.
The government recently announced a 30-day petrol discount at Nigerian National Petroleum Company (NNPC) Limited retail outlets, prioritising public transport operators.
Minister of Finance Taiwo Oyedele said the NNPC retail outlets would sell petrol at cost by foregoing their retail profit margins.
He explained that the initiative was intended to provide temporary relief rather than mark a return to the petrol subsidy system.
The Federal Government has also proposed negotiating a ceiling of ₦1,350 per litre for petrol’s ex-gantry or landing cost, with the arrangement subject to monthly reviews.
These measures are aimed at easing the burden of rising fuel prices without restoring a blanket subsidy.
IMF warns against distorting fuel demand
Valdés further argued that fuel subsidies could intensify pressure on global energy markets by discouraging consumers from adjusting their consumption when supplies become limited.
He explained that when governments prevent fuel prices from responding fully to supply shortages, demand may remain higher than it would otherwise be, forcing other consumers to bear more of the adjustment.
“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 IMF official maintained that blanket subsidies could create wider economic consequences beyond their immediate cost to governments, including effects on global energy demand and prices.
The fund therefore recommends targeted assistance as a way to protect vulnerable households while allowing energy prices to reflect market conditions.