IMF: Fuel Price Relief Could Cost Africa 4% of GDP

The International Monetary Fund (IMF) has warned African governments against broad fuel-price relief measures, saying they are expensive and poorly targeted as rising energy costs threaten household incomes and economic stability across sub-Saharan Africa.

Zeine Zeidane, director of the IMF’s African Department, said on Thursday that generalised fuel-price smoothing could cost about four per cent of gross domestic product (GDP), compared with at most 0.5 per cent of GDP for transfers that provide the poorest 40 per cent of the population with the same benefit.

He made the remarks while presenting the IMF’s October 2026 Regional Economic Outlook Update for sub-Saharan Africa at the Fund’s 2026 Annual Meetings.

“Broad fuel-price relief is expensive and poorly targeted,” Zeidane said, urging governments to protect vulnerable households without putting further pressure on already limited public finances.

He recommended targeted support, including cash transfers where delivery systems permit, school feeding programmes and geographically targeted assistance. He added that any temporary price relief should be transparently funded, capped and time-bound.

The warning comes as higher fuel and transport costs, alongside the prospect of more expensive fertiliser, threaten to increase the cost of living and put further pressure on food prices and food security across the region.

Despite the difficult global environment and the war in the Middle East, the IMF projects sub-Saharan Africa’s economy to grow by 4.5 per cent in both 2026 and 2027. The forecast for 2026 is 0.2 percentage points higher than the Fund’s April projection.

However, the IMF said the growth outlook remains clouded by rising costs, limited government finances and the risk of further external shocks.

“We project the region to grow by 4.5 per cent in both 2026 and 2027,” Zeidane said. “This gives us reason for cautious optimism.”

He attributed the region’s resilience partly to earlier economic reforms and businesses’ ability to adapt to changing global conditions. He cited subsidy and exchange-rate reforms in Ethiopia and Nigeria, alongside structural reforms in South Africa, as measures that have strengthened macroeconomic stability.

But he warned that the region’s overall growth projection masks significant differences among countries. Higher oil, copper and gold prices are supporting some commodity exporters, while growth is slowing in economies that rely less on natural resources and their external deficits are widening.

Inflation, debt pressures limit government options

The IMF expects median inflation across the region to rise from 3.4 per cent in 2025 to 4.3 per cent in 2026 and five per cent in 2027.

The Fund warned that higher fuel and transport costs were already affecting households, while rising fertiliser prices could add to food costs.

Governments also have limited capacity to cushion the impact because debt-servicing costs continue to absorb a significant share of public revenue.

According to Zeidane, interest payments account for about 12 per cent of government revenue in the typical country, leaving less money for public services and investment.

Although some countries have retained access to financial markets, borrowing remains expensive. The IMF warned that greater reliance on domestic banks to finance government spending could reduce credit available to businesses and households while increasing banks’ exposure to government debt.

Bilateral aid to sub-Saharan Africa is also projected to fall by a further 12 per cent in 2026, following a steep decline in 2025.

These pressures leave governments with limited room to respond to another major shock, including renewed disruptions to energy supplies, a sharp increase in global risk aversion or a strong El Niño weather event.

Conflict and insecurity also remain obstacles to economic activity in parts of the region.

“Overall, risks remain firmly tilted to the downside,” Zeidane said.

Urges fiscal discipline, targeted support

Beyond protecting vulnerable households, the IMF urged governments to preserve economic stability and avoid policies that could worsen inflation or increase debt pressures.

Zeidane said commodity-exporting countries should save most of the additional revenue generated by higher commodity prices, including by using some of the windfall to repay expensive debt.

Countries facing higher import bills, meanwhile, should continue adjusting their public finances while protecting essential services and productive investment.

The Fund also said monetary tightening may be necessary in many countries to prevent temporary price increases from becoming persistent inflation. Where monetary and exchange-rate arrangements allow, greater exchange-rate flexibility could help countries absorb external shocks and preserve foreign reserves.

Zeidane also stressed the importance of greater debt transparency and stronger debt management.

For Nigeria and other countries that have implemented major economic reforms, the IMF’s assessment points to the challenge of maintaining those reforms while addressing the immediate impact of higher living costs.

The Fund’s recommendations suggest that governments should prioritise support for the most vulnerable rather than use broad price interventions that could place additional pressure on public finances.

Reforms needed to attract investment and create jobs

The IMF said governments must also sustain reforms that can improve productivity, attract private investment and make their economies less vulnerable to future shocks.

Zeidane identified more reliable electricity, improved digital connectivity, stronger workforce skills and a more predictable business environment as key areas for action.

He also called for greater regional trade and power integration, saying these could expand markets and reduce countries’ exposure to imported fuel.

The reforms are particularly important because sub-Saharan Africa continues to face a significant productivity gap compared with other emerging and developing economies.

According to the IMF, closing even part of that gap could create substantial opportunities for stronger and more inclusive economic growth.

“The region’s resilience is real, and it reflects difficult reforms and remarkable adaptation,” Zeidane said. “But resilience today must not be financed by sacrificing tomorrow’s growth.”

He said protecting vulnerable households, preserving economic stability and sustaining productive investment would help turn the region’s current resilience into lasting prosperity.

The IMF said it would continue supporting countries across the region through financial assistance, policy advice and capacity development tailored to their circumstances.