IMF Warns of the Risks of Excessive Energy and Food Subsidies

The International Monetary Fund (IMF) has cautioned governments in various countries not to rush to respond to the surge in global energy and food prices. In a situation of persistent price pressures, the IMF says wrong policy could worsen inflation, burden government finances, and hinder economic adjustment. In its latest report, on Wednesday (20 May 2026), the IMF highlighted that shocks to energy and food prices are not only affecting vulnerable households but also disrupting the viability of small businesses and narrowing fiscal space for governments. “Let domestic energy prices reflect international costs,” the IMF wrote in its report. According to the IMF, when global energy prices rise, households and businesses need to receive the price signal so energy consumption can adjust. If governments keep prices artificially low for too long with large subsidies, energy consumption remains high and the state’s budget burden swells. However, such assistance should be targeted and temporary. “Protect vulnerable households with appropriately targeted temporary support,” IMF said. The IMF regards cash transfers as more effective than universal energy subsidies. Because universal subsidies are often enjoyed by higher-income groups whose energy consumption is higher. This aligns with the IMF’s Fiscal Monitor report of April 2026, which highlighted rising global fiscal pressures resulting from a combination of high debt, higher interest costs, and geopolitical uncertainty. The IMF says governments need to maintain fiscal space to be able to respond to larger crises in the future.