Reforming Energy Subsidies – Summary Note (IMF)

Subsidies are intended to protect consumers by keeping prices low. However, they hinder governments’ efforts to reduce budget deficits and directly support the poor, encourage excessive energy consumption, and reduce the incentive for investment in other forms of cleaner energy. In 2009, the Group of 20 advanced and emerging market economies called for a phase out of inefficient fossil fuel subsidies in all countries, and reaffirmed this again in 2012. While there is no single recipe for successful subsidy reform, ingredients such as comprehensive energy sector reform, measures to protect the poor, gradual price increase,  and institutional reforms that depoliticize energy pricing are needed.