IMF warns against blanket subsidies

Governments should avoid broad-based fuel subsidies and instead deploy targeted support as the Middle East conflict drives up energy costs and tightens global financial conditions, the International Monetary Fund has warned, noting rising fiscal risks for energy-importing economies such as Ghana.

The Fund, in its April 2026 Fiscal Monitor, said the conflict is disrupting energy supplies and amplifying price pressures, forcing policymakers to choose between cushioning households and preserving already limited fiscal space.

It cautioned that “broad-based price subsidies should be avoided” where they impose large fiscal costs, are difficult to reverse, and distort price signals.

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Instead, support should be “temporary, targeted, and preferably delivered through existing social safety nets.”

The warning comes as Ghana moves to shield consumers from rising global fuel prices. The government has cut statutory levies on diesel by GH¢2 per litre and reduced petrol levies by GHp36, helping to moderate pump prices in the April 16–30 pricing window.

According to the Chamber of Oil Marketing Companies (COMAC), diesel is projected to decline by 3.86 percent to about GH¢17.60 per litre, while petrol will rise by up to 3.01 percent to around GH¢14.77 and LPG by 0.90 percent to GH¢15.85 per kilogram.

COMAC said the intervention prevented sharper increases, noting that international diesel prices rose 6.98 percent in early April, alongside increases in petrol and LPG prices. The cedi also weakened marginally by 0.74 percent to about 11.13 per US$.

The group described the levy cuts as a short-term burden-sharing arrangement between the state and downstream operators.

The IMF’s guidance highlights the policy tension facing Ghana. While targeted interventions can mitigate immediate cost pressures, repeated or expanded subsidies risk undermining fiscal consolidation efforts.

The Fund noted that global public debt reached about 94 percent of GDP in 2025 and is projected to approach 100 percent by 2029, with higher interest rates raising debt-servicing burdens and narrowing fiscal space.

Emerging and frontier markets, including Ghana, face additional constraints. Although market access improved in 2025, issuance volumes have declined and borrowing maturities shortened for lower-rated sovereigns.

At the same time, interest payments have risen sharply, and declining external aid is creating financing gaps for low-income countries.

IMF Executive Board in its discussion stressed the need to rebuild fiscal buffers through credible medium-term plans anchored on stronger revenue mobilisation and improved spending efficiency.

“Credible consolidation and predictable rules remain essential for regaining market confidence,” the Board said, while emphasising the importance of safeguarding social and development spending.

The Fund also called for domestic fuel prices to reflect international market movements to support demand adjustment, even where temporary targeted support is provided.

This approach, it said, should be aligned with monetary policy to contain inflation and avoid further pressure on exchange rates.