IMF says subsidies aren’t the best way to deal with high energy prices.
The IMF stated Wednesday that governments should avoid using blanket subsidies to cushion the pain of recent high energy prices.
Broad subsidies are costly, therefore policymakers should instead utilize targeted aid to assist low-income households who have been hardest hit by the recent spike, according to Paulo Medas of the IMF’s Fiscal Affairs Department.
Generalized energy subsidies, according to Medas, “benefit wealthier households who don’t need the help,” making them exceedingly expensive.
Furthermore, “they are not environmentally benign, in fact, they lead to highly bad incentives.”
The IMF suggests “targeting more targeted help to those who are most vulnerable and worst hit,” such as cash transfers or electric bill subsidies for low-income households.
Oil prices have risen to their highest levels in years in recent weeks, climbing past $80 per barrel, raising fears that inflation will continue to rise indefinitely.
According to Medas, the increase was expected to some extent as global consumption recovered following the Covid-19 outbreak, but he emphasized the IMF’s desire for countries to transition to more renewable energy.
“The truth is that we’ve been dealing with significant price swings in oil and gas for a long time. And the only long-term solution is to deal with it “He believes that investing more in renewable energy is the way to go.
“This will be the only way to establish a resilient economy and safeguard consumers from oil and gas price volatility.”