## Annex: Mitigating the Impact of High Energy and Food Prices

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**Canonical URL:** [Annex: Mitigating the Impact of High Energy and Food Prices](https://www.imf.org/-/media/files/blogs/annex-mitigating-the-impact-of-high-energy-and-food-prices.pdf)

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### Shock scenarios and fiscal response
- Shock: Within historical range, even if large.
  - Fiscal response: Automatic stabilizers.
- Shock: Within historical range, even if large.
  - Fiscal response: Automatic stabilizers plus discretionary response subject to fiscal space.
- Shock: Very large by historical standards but likely temporary.
  - Fiscal response: Automatic stabilizers plus discretionary response subject to fiscal space.
- Shock: Sudden, extraordinary, largely temporary but likely disruptive.
  - Fiscal response: Automatic stabilizers plus discretionary response subject to fiscal space.

### Price policy and household measures
- Prices
  - Allow full pass-through.
  - Consider smoothing price increases but allow large upfront increase in energy prices, followed by a gradual convergence toward long‑term levels.
- Households: Targeted and temporary cash transfers to vulnerable households.
  - Expand existing programs (targeted transfers, child benefits).
  - Use digital tools to identify beneficiaries and deliver support.
  - If coverage is insufficient, expand existing programs and consider one‑off cash transfers to affected middle‑income households.
  - Consider temporary reductions in regulated tariffs (education, health, transport).
  - Consider temporary, lump sum, cushion in regulated tariffs (education, health, transport).
  - Consider smoothing energy bills or temporary bill discounts (if no price smoothing is already in place) but allow large initial adjustment.
  - As a last resort, if food security is at risk, temporarily reduce taxes or provide price subsidies for basic food items, with clear sunset clauses.
  - Provide support only if the shock creates liquidity—not solvency—problems.
- Generalized energy price subsidies: Do not introduce.

### Targeting and firm support
- Firms
  - Target otherwise (pre-shock) viable or strategic energy firms disproportionately affected, to prevent unnecessary bankruptcies and loss of productive capacity.
  - Consider providing temporary government-guaranteed bank loans (with risk sharing).
  - Consider providing temporary credit lines or working-capital facilities.
  - Consider introducing deferrals of tax and social security.
  - Avoid direct grants and equity injections given their fiscal cost and difficulty to unwind.
  - Consider only as a last resort, and solely to cushion extreme price spikes if no other instrument is available.
  - Provide support only if the shock creates liquidity—not solvency—problems.

### Design considerations for subsidies and price interventions
- Consider energy subsidies to help smooth inflation if all of the following conditions are likely to materialize:
  - shock is temporary;
  - with limited economic overheating but strong pass-through to core inflation;
  - weak international policy synchronization; and
  - where fiscal space is available.
- Any use should be transparent, temporary, and designed to minimize distortions.
- Price caps are easier to phase out but risk shortages while tax reductions reduce supply risks but are harder to reverse and may lead to persistent revenue losses.
- Fuel: Vary adjustments by fuel type, reflecting consumption patterns across income groups.
- Utilities: Gradually adjust tariffs, complemented by uniform lump‑sum bill discounts.
- Food: Increase rationed food prices gradually; improve targeting and reduce leakages.
- Target otherwise (pre-shock) viable or strategic energy firms disproportionately affected, to prevent unnecessary bankruptcies and loss of productive capacity.

### Implementation sequencing and defaults
- Already in place: No specific support.
- Not in place: Do not introduce generalized energy price subsidies.
- Households (if measures already in place): Gradually increase energy prices and elaborate an exit strategy when international prices moderate.
- Firms: Support measures—targeted and temporary—rather than broad grants or equity injections.

*Sources: IMF (2022), Fiscal Policy for Mitigating the Social Impact of High Energy and Food Prices; IMF Special Series on COVID‑19, Considerations for Designing Temporary Liquidity Support to Businesses. IMF Office Memorandum, Fiscal Energy Price Measures and Inflation, October 4, 2023*

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_Source: https://www.imf.org/-/media/files/blogs/annex-mitigating-the-impact-of-high-energy-and-food-prices.pdf_