## How to Build Public Support for Energy Subsidy and Pension Reforms

_IMF Blog, April 16, 2025_

## Source details

**Canonical URL:** [How to Build Public Support for Energy Subsidy and Pension Reforms](https://www.imf.org/en/blogs/articles/2025/04/16/how-to-build-public-support-for-energy-subsidy-and-pension-reforms)

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## Bibliographic details
- Authors: Era Dabla-Norris, Davide Furceri, Mauricio Soto
- Published: April 16, 2025

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### Overview
- 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.

### Fiscal impact
- 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.

### Sentiment matters
- 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.

### How to bolster support (policy design and sequencing)
- 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.

### Communication, ownership, and political commitment
- 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.

### Key policy recommendations (synthesized from examples and findings)
- 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*

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## References

- [April 2025 Fiscal Monitor](https://www.imf.org/en/Publications/FM/Issues/2025/04/23/fiscal-monitor-April-2025)

_Source: https://www.imf.org/en/blogs/articles/2025/04/16/how-to-build-public-support-for-energy-subsidy-and-pension-reforms_