The IMF said governments struggling with rising food and fuel prices should target aid to vulnerable citizens rather than issue blanket subsidies that can add to strains on public finances.
More than half of the 134 countries surveyed introduced subsidies or tax cuts to soften the blow of skyrocketing prices triggered by the war in Ukraine, the International Monetary Fund (IMF) said in a blog post.
Russia’s invasion of Ukraine has caused sharp rises in food and fuel prices, aggravating global economic problems, especially for developing economies.
“Monetary policymakers must allow high global prices to trickle down into the domestic economy while protecting vulnerable households affected by increases.”
“That is ultimately less expensive than keeping prices artificially low for everyone, regardless of their ability to pay.”
The IMF blog noted that governments had passed on less of rising oil prices to consumers in the first four months of this year than in 2021, adding that the subsidies encouraged higher energy consumption and thus , price rise.