Fiscal Policy for Mitigating the Social Impact of High Energy and Food Prices

The surge in energy and food prices that started in the summer of 2020 represents a terms of trade loss for importing countries. It also implies a loss of real income, particularly to those at the lower end of the income distribution. Fiscal policy has a crucial role in lessening the impact on the most vulnerable households. Governments must balance by ensuring access to energy and food, normalizing fiscal policy after unprecedented support in 2020, and promoting green transformation. The advice will be country-specific but general principles for policymakers include: 

  • Countries with strong social safety nets (SSNs)
  • Countries with weak SSNs and without existing energy and food subsidies
  • Countries with weak SSNs and with existing energy and food subsidies