IMF Urges Caucasus And Central Asian Countries To Avoid Broad Energy Subsidies

(MENAFN- Trend News Agency) BAKU, Azerbaijan, November 13. Countries in the Caucasus and Central Asia should avoid introducing broad energy subsidies in response to potential increases in energy prices, as such measures could fuel inflationary pressures and make it harder for central banks to bring inflation under control, Roberto Cardarelli, Assistant Director in the Middle East and Central Asia Department of the International Monetary Fund, said.

He made the remarks during the presentation of the regional economic outlook report "Caucasus and Central Asia Steering Through Uncertainty".

He said the main risk facing the region was that inflation could exceed projected levels, despite expectations that it would gradually decline towards target levels in most countries.

Cardarelli stressed that monetary policy should serve as the first line of defense against such a scenario. Fiscal policy, in turn, should complement central banks' efforts rather than create additional obstacles to containing inflation.

He noted that rising energy prices could tempt governments to offset the impact through subsidies. However, according to the IMF's modeling, in countries with limited fiscal space, such measures could force central banks to raise interest rates even further.

"Ultimately, economic activity ends up being not much higher, while public debt increases," Cardarelli explained.

He clarified that the IMF did not rule out fiscal support measures, provided that subsidies were targeted, temporary and carefully designed.

Cardarelli also highlighted the importance of exchange rate flexibility, which allows economies to adjust to external supply shocks and mitigate their impact on economic activity.

In addition, he urged countries in the region to accelerate structural reforms, with particular emphasis on regional integration, the development of transport links and corridors, and trade diversification.

According to him, changes in the structure of global trade are creating additional opportunities for countries in the Caucasus and Central Asia, which the region should capitalize on to ensure long-term economic growth.

MENAFN13112026000187011040ID1111956216