By Damilare Adeleye
The International Monetary Fund (IMF) has warned countries against providing fuel subsidies despite the global rise in energy prices.
Rodrigo Valdes, the IMF’s fiscal affairs chief, issued this guidance on Wednesday during the IMF and World Bank Spring Meetings in Washington, D.C.
He urged nations to move away from subsidies and instead help citizens navigate oil shortages and price surges through more efficient fiscal measures.
Valdes recommended that governments opt for temporary cash transfers, which support vulnerable populations without obscuring market prices or artificially maintaining high demand.
The IMF highlighted that the ongoing conflict in the Middle East has intensified strains on a fragile global fiscal situation already burdened by high interest rates.
Valdes explained that energy must become more expensive for all consumers to encourage a necessary reduction in consumption and facilitate global adjustment.
He cautioned that if countries suppress price signals through subsidies, global prices will ultimately climb even higher.
It is essential, according to the IMF, to allow price signals to reach consumers so that market demand can adjust naturally to the global shock.
This warning follows the IMF’s decision to cut its growth outlook due to war-driven energy price spikes and supply disruptions.
The organization noted that the global economy could be pushed toward a recession if regional conflicts widen and oil prices remain above $100 per barrel through 2027.
Era Dabla-Norris, the IMF’s deputy fiscal affairs director, observed that current government responses have been more restrained than those seen during the 2022 energy shock following Russia’s invasion of Ukraine.
She noted that because fiscal space is now more constrained, the IMF is advocating for a disciplined approach to cushioning economic impacts rather than the implementation of large-scale subsidy packages.