IMF calls for food, energy subsidy as global recession looms

Governments worldwide need to subsidise the cost of food and energy, "in a much targeted manner, preferably by providing subsidies directly to people,” as global recession fears loom, the International Monetary Fund said.

Reiterating that the poor strata of the society have been struggling due to inflation and the high cost of living, Kristalina Georgieva said while many governments have been providing some kind of help via schemes and other provisions, that may not be enough.

In an interview with BBC, Georgieva voiced concern that without the correct government support the protests seen in Sri Lanka could be repeated in other countries.

When it comes to the cost of living crisis there are two priorities, one the very poor people and segments of society that are now struggling with high food and energy prices; the second is to support those businesses that have been most damaged by the war in Ukraine, the IMF head said.

“The IMF’s role is to work with governments to stabilise the global economy and enhance prosperity. However, that's proving challenging because food prices have hit record highs this year, while oil and gas prices have also risen sharply,” she said.

Georgieva’s call for urgent action by governments to cushion against the impact worldwide stagflation — a combination of spiralling inflation and recession — comes in the wake of a dire warning by the World Bank that the war in Ukraine is set to cause the "largest commodity shock" since the 1970s.

In a grim forecast, the World Bank said disruption caused by the conflict would contribute to huge price rises for goods ranging from natural gas to wheat and cotton, leading to very large economic and humanitarian effects. Already, households across the world are feeling the cost of living crisis.

The Bank of England governor Andrew Bailey also warned of the possibility of more rises in food prices.

Over the last few months governments have made a range of interventions to try and lower the cost of living.

In the US President Biden has released oil from reserves to try and bring prices down. India, Spain and Portugal have capped gas bills.

Over the weekend, India cut levies on pump prices of gasoline and diesel, waived import tax on coking coal and increased payouts on fertilizers as well as cooking gas for the poor. The UK has made some tax changes and is considering a windfall tax on the soaring profits of energy companies.

The IMF chief also called on the countries to support the businesses that have been tattered and "most damaged” due to the ongoing war in Ukraine waged by Russia.

The current scenario is a challenge as food prices have hit record highs, and prices of oil and gas are also shooting up uncontrollably, according to the IMF head. She expressed worries about the higher borrowing costs on governments that are debt-ridden since the Covid-19 pandemic. Governments need to be "very careful" about how much money they spent and what they spent it on, Georgieva warned.

There’s a twin shock due to the coronavirus pandemic. Both Russia and Ukraine are major crops and hydrocarbons exporters of the world and the war has triggered a dearth of the basic commodities.

— issacjohn@khaleejtimes.com