The International Monetary Fund, IMF, has urged countries to replace blanket fuel subsidies with targeted assistance for vulnerable households.
Rodrigo Valdés of the IMF’s Fiscal Affairs Department gave the advice while answering journalists’ questions at a Fiscal Monitor briefing during the IMF-World Bank meetings in Bangkok on Wednesday.
Valdés said fuel subsidies were an inefficient way to protect citizens from rising energy prices because higher-income households often benefited more from cheaper fuel due to their greater consumption.
He added that such subsidies diverted public resources from households that needed assistance most.
“It’s very, very expensive for a typical country in the world,” Valdés said.
He urged governments with sufficient fiscal resources to strengthen social safety nets and provide direct support to vulnerable households, particularly where reliable data could help identify those in need.
Valdés also recommended targeted measures to reduce transportation costs, including subsidising public transport fares rather than keeping petrol and diesel prices artificially low for all consumers.
“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.
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He noted that some governments had improved their responses to energy price shocks compared with the measures adopted during the 2020 and 2022 crises, although fuel subsidies remained in use in some countries.
Valdés warned that blanket subsidies could also affect international energy markets by preventing domestic demand from adjusting when global fuel supplies decline.
He said this could force consumers elsewhere to absorb a larger share of the adjustment, contributing to higher prices in international markets.
Meanwhile, Davide Furceri, a division chief in the IMF’s Fiscal Affairs Department, called on governments to strengthen domestic revenue mobilisation alongside better-targeted public spending.
Furceri said countries with low tax revenues, including Nigeria and Ethiopia, needed to broaden their revenue bases to meet rising debt-servicing costs and generate funds for development.
He said stronger revenue collection would help governments manage high interest payments while providing resources to support economic growth.
Furceri also urged governments to improve tax systems by removing distortions that discourage economic activity while protecting spending on education, healthcare and public loop investment.
On social protection, he recommended that countries gradually develop national registries and digital payment systems to improve the delivery of assistance.
In the short term, he said governments could rely on existing programmes, including school feeding initiatives, geographical targeting and support for vulnerable farmers, to reach households in need.
NAN
