"Targeted measures for rising energy prices" - IMF urges EU countries to protect families and businesses
European countries have failed to offer targeted measures to protect households and businesses suffering from high energy prices, the International Monetary Fund (IMF) said, urging them to focus on concrete solutions for the most affected.
"Most governments, in one way or another, have intervened in energy prices, which is not the way to go. So, over time, if the situation continues, we need to be more focused," the IMF said. According to the international financial institution, the main target should be vulnerable households and it called on EU governments to ensure that the measures do not cause "more harm than good."
Oil prices have increased by about 70%, while European gas prices remain roughly 45% above pre-war levels. Although less severe than the 2022 shock, these prices are expected to have a significant impact on the economy.
In response, some EU governments have cut energy taxes, making it artificially cheaper and discouraging people from using less energy or switching to alternatives. The IMF warns EU member states against “softening the price signal” coming from higher oil, natural gas and electricity prices, but instead to focus on targeted support.
During the Eurogroup meeting, the IMF informed finance ministers that around 70% of the total cost of measures taken in 2022, following Russia’s invasion of Ukraine, were either not targeted, or distorted prices, or both. In the current energy shock, the IMF noted that 33% of electricity subsidies, if not targeted, could go to the richest 20% of the population, compared to 11% for the poorest.
This gap is even wider when it comes to transportation fuel subsidies, which the IMF identified as potentially benefiting the richest households (34%) rather than the poorest (9%) if the measures are not targeted.
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