Costly energy: IMF backs targeted cash aid over broad price subsidies
General price subsidies cost governments three to six times as much as targeted transfers to vulnerable households, the IMF finds. Support for producers can cost many times more.
Archive image · Photo: International Monetary Fund / Wikimedia Commons, Public domain (cropped and resized)
Targeted cash transfers are the most effective and fiscally efficient way to protect vulnerable households in cost-of-living crises, according to a new analysis by the International Monetary Fund. The finding comes from Chapter 2 of the new World Economic Outlook, titled "Navigating a Shock-Prone World: Lessons from Cost-of-Living Crises". General consumer price subsidies require three to six times more fiscal spending to provide comparable support. Producer subsidies can cost many times more than targeted aid and can end up subsidising consumers abroad.
IMF economist Chiara Maggi is due to present the findings on Tuesday at the IMF and World Bank annual meetings in Bangkok, where expensive energy is one of the main topics. An IMF model that accounts for higher inflation among poorer households suggests that around 23 million more people fell below the extreme poverty line in 2021–2024 than previously calculated. Inflation expectations can also remain well above pre-crisis levels even three years after a shock. According to the IMF, advanced economies used a more balanced policy mix, while emerging and developing economies relied more on price suppression.