The International Monetary Fund (IMF) has urged governments to replace blanket fuel subsidies with targeted assistance for vulnerable households, warning that keeping fuel prices artificially low is costly and often benefits wealthier consumers.
Rodrigo Valdés of the IMF’s Fiscal Affairs Department made the recommendation on Wednesday during a news briefing on the Fiscal Monitor in Bangkok.
He said fuel subsidies were an inefficient way to protect citizens from rising energy prices because higher-income households often benefited more, while limited public resources were diverted from those most in need.
Valdés advised governments to strengthen social safety nets and provide direct support to vulnerable households. He also recommended targeted measures, such as subsidising public transport fares, rather than keeping petrol and diesel prices low for everyone.
He warned that blanket subsidies could prevent domestic demand from adjusting to declining global fuel supplies, placing greater pressure on other consumers and contributing to higher international prices.
Meanwhile, Davide Furceri, a division chief in the IMF’s Fiscal Affairs Department, urged governments to increase domestic revenue mobilisation to manage rising debt-servicing costs while funding development.
He said countries with low tax revenues, including Nigeria and Ethiopia, needed to broaden their tax bases and improve tax systems without undermining economic activity.
Furceri also recommended developing national registries and digital payment systems to improve social assistance delivery. In the short term, governments could rely on existing mechanisms, including school feeding programmes, geographical targeting and support for vulnerable farmers.
