By Atlantic Reports

The International Monetary Fund (IMF) has urged governments to replace blanket fuel subsidies with targeted assistance for vulnerable households, arguing that keeping prices artificially low is expensive and often benefits higher-income consumers most.

Rodrigo Valdés of the IMF’s Fiscal Affairs Department made the case on Wednesday during a Fiscal Monitor news briefing at the IMF/World Bank meetings in Bangkok.

He said households that consume more fuel often receive a larger share of subsidy benefits, limiting the effectiveness of the policy as protection for those most in need.

“It’s very, very expensive for a typical country in the world,” Valdés said.

He urged governments with available resources to strengthen social safety nets and use reliable household data to direct assistance.

Public Transport as an Alternative

Valdés suggested that governments could cushion rising transport costs without subsidising gasoline and diesel for every consumer.

“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,” he said.

The distinction matters for households that depend on public transport but purchase little fuel directly. Targeted fare support could reach them through their daily travel costs.

However, the proposal would require practical arrangements to identify eligible services, compensate operators and ensure that passengers receive the intended savings. The supplied account did not set out such an implementation model.

Valdés said government responses to recent energy shocks had improved compared with those during the 2020 and 2022 crises, although some countries continued to rely on broad fuel subsidies.

Effects Beyond National Borders

Valdés also argued that subsidies could intensify pressure on international energy markets by preventing domestic consumption from adjusting when global supplies decline.

In his assessment, maintaining subsidised demand could shift more of the adjustment onto other consumers and contribute to higher international prices.

These were general policy arguments. The briefing account did not quantify the potential savings or market effects for individual countries.

Revenue and Essential Services

Davide Furceri, a division chief in the IMF’s Fiscal Affairs Department, said better-targeted spending should be accompanied by stronger domestic revenue mobilisation.

He identified Nigeria and Ethiopia among countries needing broader revenue bases to meet debt-servicing costs and finance development.

Furceri urged governments to remove distortions in tax systems while protecting expenditure on education, healthcare and public investment.

The supplied account did not specify tax measures for Nigeria or assess their potential effects on different income groups.

Delivering Support to Those Who Need It

Furceri said countries should gradually develop national social registries and digital payment systems to improve assistance delivery.

In the short term, he suggested using existing channels, including school feeding programmes, geographical targeting and support for vulnerable farmers.

The IMF’s recommendation places emphasis on directing limited resources towards people most exposed to rising costs. Its effectiveness will depend on accurate identification, timely payments and accessible arrangements for households missed by existing systems.

For vulnerable families, the practical test is whether targeted support arrives when needed and meaningfully offsets the higher costs they face.

Atlantic Reports: Voices. People. Facts.