Energy Prices Rise, Yet IMF Urges End to Fuel Subsidies – What's Going On?

Jakarta – The International Monetary Fund (IMF) has warned countries against relying extensively on fuel subsidies to cushion the global surge in energy prices. Such policies are deemed risky, as they could exacerbate fiscal conditions and trigger greater long-term economic pressures.

In its latest Fiscal Monitor report, the IMF highlights that the spike in energy prices, driven by geopolitical conflicts, has prompted many nations to seek quick ways to protect household purchasing power. However, broad energy subsidies are considered an inappropriate solution if applied across the board.

IMF Fiscal Affairs Department head Rodrigo Valdes stressed that countries should avoid widespread fuel subsidies and opt for more targeted approaches, such as temporary cash assistance to vulnerable groups.

“We don’t have enough oil. We don’t have enough energy. Energy does need to become more expensive for everyone, so that adjustment can occur and consumption can decrease,” Valdes stated, as quoted from Reuters on Thursday, 16 April 2026.

According to him, high energy prices serve as an important market signal to adjust demand to supply conditions. If governments suppress prices through massive subsidies, this signal becomes ineffective.

“If prices are suppressed, global prices could end up even higher. It’s very important to send price signals so that demand can adjust,” he added.

The IMF also notes that the current global fiscal situation is under pressure. Government debt worldwide reached 93.9% of gross domestic product (GDP) in 2025 and is projected to continue rising towards nearly 100% in the coming years. In a worse-case scenario, this figure could even breach 121%.

Moreover, the debt interest payment burden has risen sharply to nearly 3% of global GDP. This indicates that fiscal space in many countries is increasingly limited, so policies that could add to the budget burden need to be considered carefully.

IMF Fiscal Affairs Deputy Director Era Dabla-Norris stated that countries’ responses to the current energy price surge have been relatively more restrained compared to previous crises.

“Countries are not immediately rolling out large packages. In a context of limited fiscal space and numerous policy options, a more disciplined approach is what we encourage,” she said.