How to Build Public Support for Energy Subsidy and Pension Reforms

IMF Blog, April 16, 2025

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Public approval is crucial for carrying out difficult reforms that can help countries lower debt and increase growth.
A new method analyzed more than 2 million news articles tracking energy subsidy reforms in 170 countries since 1990 and pension reforms in 134 economies since 1960 to gauge public sentiment.
Effective reforms are well-designed, introduced at the right time, and often implemented gradually or during good economic times to gain more public support.

Energy subsidies and pension spending are significant drivers of fiscal pressure and reform can yield large returns.
Key statistics:
- "On average, emerging and low-income countries spend 1.5 percent of their gross domestic product on energy subsidies."
- "Pension spending accounts for 8 percent of GDP in advanced economies and 4 percent in emerging markets."
Fiscal and distributional effects highlighted:
- Fuel subsidies mainly benefit higher income groups as they consume more fuel.
- Reducing energy subsidies can free up funds, eliminate price distortions, promote more efficient energy use, and foster long-term inclusive growth.
- Pension reforms can help ensure sustainability of retirement systems and support employment, especially for the youth.

Public sentiment is a critical determinant of reform success.
Findings:
- Public support is the most important indicator of successful pension reforms, particularly when families, civil society organizations, labor unions, and opposition groups back changes.
- For energy subsidies, positive public sentiment is almost as crucial as the actual changes in fuel prices.
- Fuel price increases are always unpopular; changes to social security systems raise concerns about contributing more or working longer.

Gradual implementation:
- Gradual reforms allow time for adjustment and can enhance public support. Example: Colombia used a two-year timeline for gasoline price adjustments; schedule adherence helped build trust and reduced resistance.
- Note: Colombia removed gasoline subsidies more quickly than diesel subsidies, where elimination has been much slower.
Timing and economic conditions:
- Phased reforms during periods of strong economic growth are easier to sell. Example: Germany successfully increased the retirement age during favorable conditions.
- When urgent budget pressures exist, rapid increases can signal commitment and prepare citizens for further changes. Example: Morocco increased fuel prices by about 20 percent to address urgent budget pressures and set the stage for fully eliminating subsidies.
Compensation and offsetting measures:
- Quickly compensating those affected reduces concerns and builds support. Example: Australia increased the pension age while providing a substantial boost in old-age benefits, of over 10 percent for low-income retirees.
- Short-term relief measures can postpone necessary price adjustments. Example: In response to the energy price surge in 2022, governments in Europe lowered taxes and provided cash transfers, easing discontent but postponing future adjustments.

Clear communication and stakeholder engagement are essential:
- Explain how reforms improve fiscal health and expand public services to reduce concerns and increase support.
- Example: Morocco used a well-planned communication strategy to involve various groups and emphasize that subsidies were not an effective way to provide social support.
Political leadership and ownership:
- Strong political commitment and active engagement with stakeholders help build consensus. Example: In Uruguay the president made raising the retirement age a central policy and engaged key political stakeholders to create consensus.

Design reforms with phased or gradual implementation where feasible to allow adjustment.
Time reforms to coincide with stronger economic conditions when possible, but prepare credible rapid-actions when fiscal pressures require urgency.
Target compensation to those most affected to protect equity and build support.
Invest in clear, sustained communication strategies that explain fiscal benefits and reallocation of savings to visible social programs and infrastructure.
Build political ownership and actively engage families, civil society, labor unions, and opposition groups to increase the probability of success.

How to Build Public Support for Energy Subsidy and Pension Reforms — Era Dabla-Norris, Davide Furceri, Mauricio Soto, April 16, 2025