WASHINGTON: In a bid to combat inflation, the International Monetary Fund (IMF) has advised authorities to prioritise protecting the weak through targeted assistance.
Vitor Gaspar, director of the IMF's fiscal affairs department, said in a statement on Wednesday that "governments confront difficult trade-offs amid substantial increases in food and energy costs."
As per IMF blog, policymakers must safeguard low-income households from large real income losses and guarantee their access to food and energy. "But they must also lessen vulnerabilities resulting from high public debts and, in reaction to high inflation, maintain a tight fiscal posture so that fiscal policy does not conflict with monetary policy."
In response to the threat that rising prices pose to people's standard of living, governments have implemented a number of fiscal policies, including price subsidies, tax breaks, and cash transfers, the median fiscal cost of which is estimated to be 0.6% of national gross domestic product.
Price controls, subsidies, or tax reductions would be "costly" to budgets and "ultimately useless," said Gaspar. The most vulnerable individuals should receive targeted support through social safety nets as a result of high debt levels and increased borrowing rates, according to authorities. In a time of high inflation, the statement said, policies to address high food and energy costs shouldn't increase aggregate demand since doing so would push central banks to hike interest rates even higher, which would increase the cost of servicing government debt.
A stronger signal that policymakers are united in their fight against inflation is sent by a tightening budgetary posture. According to the most recent World Economic Outlook report from the IMF, which was released on Tuesday, inflation pressures are proving to be wider and more persistent than expected despite the economic slowdown.
Global inflation is now likely to peak at 9.5 percent this year before decelerating to 4.1 percent by 2024, the report said.
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