IMF recommends targeted support over subsidies to combat inflation

The International Monetary Fund (IMF) has advised that targeted, temporary income support is more effective and cost-efficient than broad-based subsidies for protecting vulnerable households during cost-of-living crises. In its latest World Economic Outlook, the IMF noted that consumer subsidies can require three to six times more fiscal resources than targeted cash transfers to achieve the same level of protection for low-income families. Producer subsidies were found to be even more costly, potentially requiring 14 to 22 times more resources.

The report, which analyzed economic consequences across 76 countries over 30 years, highlighted that disruptions in global commodity markets—such as those following the 2022 invasion of Ukraine and conflicts in the Middle East—have driven up essential food and energy prices. These surges can lead to lasting economic issues, including weakened purchasing power, falling real wages, and increased difficulty for central banks to control inflation expectations.

Poorer households are disproportionately affected because food and energy constitute a larger share of their total spending. The IMF noted that the impact on poverty and inequality is particularly severe in lower-income countries.