IMF Notes

Energy subsidies—on fuel, gas, and electricity—remain prevalent across the Arab world, with substantial fiscal, economic, and environmental cost. Arab countries where energy subsidies are more prevalent tend to see, on average, lower productivity growth. At the same time, experiences from Arab countries and elsewhere show that subsidy reforms can be successfully implemented. Over the last decade, several Arab countries have initiated energy subsidy reforms, often accompanied by new or strengthened social support mechanisms to shield the impact of higher energy prices on the most vulnerable. Such compensatory measures and the reallocation of fiscal gains towards social and development spending could enhance public support for reforms. At the same time, the timing and pace of phasing out subsidies are critical to minimize disruptions and ensure the reforms’ sustainability. Complementary actions include measures to improve governance and the business environment, supported by clear and proactive communication.