By Rachel Savage

LONDON, Reuters – Tuesday’s IMF statement stated that governments should focus on aiding vulnerable people rather than distributing general aid which could increase public financial strains.

The International Monetary Fund stated in a blog that more than half the 134 countries polled said they have introduced tax or subsidy cuts in order to lessen the impact of the soaring prices triggered by war in Ukraine.

Russia’s invasion in Ukraine caused sharp rises in fuel and food prices. This has compounded global economic woes for those developing countries that are more struggling than the richer economies to recover from COVID-19.

The IMF blog stated that policymakers must allow the high prices of global commodities to flow through the domestic economy and protect vulnerable households.

It’s cheaper than keeping prices artificially low to all, regardless of ability to pay.

Graphic: Inflation surge driven by food and energy prices – https://fingfx.thomsonreuters.com/gfx/mkt/lgpdwelnevo/Pasted%20image%201652968605633.png

Often, the IMF makes it a condition for aid to be given that subsidies are removed.

Pakistan cut fuel subsidies on June 2, for the second consecutive week, to obtain a IMF bailout. Tunisia announced Tuesday that it will begin cutting food and energy subsidies in the next year, along with financial transfers for poor families as part of its $4 billion IMF loan.

Blog post by the IMF noted that the governments passed less oil price increases onto consumers this year than in 2021. It also said that subsidies encouraged increased energy consumption, which in turn fed rising prices.

The blog suggested that governments may be forced to offer subsidies, or even give out staples because of food security. But it also advised that clear sunset clauses for the termination of such programs were necessary.