IMF warns against blanket petrol subsidies, suggests targeted support for poor, vulnerable people

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The International Monetary Fund (IMF) on Wednesday warned against blanket subsidies, saying targeted support for vulnerable and poor people provides better results.

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Rodrigo Valdés, Director of the IMF’s Fiscal Affairs Department, 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 that, beyond being expensive, blanket petrol subsidies often benefit higher-income consumers disproportionately and could worsen fiscal pressures amid rising debt and borrowing costs.

“Protecting people is not the same as protecting the price of fuels,” Mr Valdés said.

“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.”

Mr Valdes spoke in response to a question on how the IMF could recommend energy prices to reflect scarcity when higher fuel prices in Nigeria and some other countries have led to higher cost of living, increased transport costs, worsening inflation, and poverty.

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.

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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 transfers 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.”

READ ALSO: Targeted support, not subsidies, can best protect people when inflation surges IMF

Local Debates

Debates over the propriety of fuel subsidy has been at the centre of discussions in Nigeria in recent weeks, ahead of a crucial election slated for January.

While the Nigerian government, led by President Bola Tinubu, has defended its economic policy of subsidy removal as critical to the nation’s fiscal survival, opposition politicians—such as Atiku Abubakar of the ADC and Peter Obi of the NDC—have canvassed for and promised a return to different subsidy arrangements if elected into power.