IMF says targeted aid shields vulnerable households at lower cost
IMF research says targeted cash transfers best protect vulnerable households during cost-of-living crises while limiting fiscal costs.
- New IMF research concludes that targeted cash transfers are the most effective and fiscally efficient method for protecting vulnerable households during cost-of-living crises.
- Broad measures like consumer subsidies are significantly more expensive, requiring three to six times more fiscal spending than targeted transfers to provide a comparable level of support.
- Producer subsidies are identified as an even more costly and inefficient approach, as they risk using domestic taxpayer money to subsidize consumers in other countries.
- Unlike broad price suppression, targeted aid preserves market price signals, which can help supply and demand rebalance more naturally.
Targeted cash transfers are the most effective and fiscally efficient way for governments to protect vulnerable households during cost-of-living crises, according to new International Monetary Fund (IMF) research.
The findings form part of Chapter 2 of the IMF’s October 2026 World Economic Outlook, titled “Navigating a Shock-Prone World: Lessons from Cost-of-Living Crises”, which examines how sharp increases in food and energy prices have affected inflation, poverty and inequality over the past five years.
Chiara Maggi, an economist in the IMF’s Research Department, is due to present the findings during the IMF–World Bank Annual Meetings in Bangkok on October 13.
The study defines a cost-of-living crisis as a period in which prices for essential goods, particularly food and energy, rise rapidly and far faster than prices for other goods and services.
IMF research found that both short- and medium-term inflation expectations rise sharply when such crises occur and can remain significantly above pre-crisis levels even three years after the initial shock.
The persistence of higher inflation expectations can create second-round effects, potentially making it more difficult for central banks to bring inflation under control.
Lower-income households bear a disproportionate burden because they spend a larger share of their income on essential goods, the study found.
Cost-of-living crises push millions into extreme poverty
The IMF’s new economic model, which accounts for the higher inflation experienced by poorer households, suggests that 23 million more people fell below the extreme poverty line between 2021 and 2024 than previously calculated.
The model showed a gap of about 0.8 percentage point compared with standard inflation measures.
Governments around the world have responded to cost-of-living pressures through a range of measures, including price controls, tax reductions, subsidies and direct income support.
However, the IMF found significant differences between advanced economies and emerging and developing countries in the types of policies used.
Advanced economies generally adopted a more balanced mix of measures, combining efforts to reduce prices with direct income support for households and businesses, including both targeted and broad-based assistance.
Emerging market and developing economies relied more heavily on measures aimed at suppressing prices, reflecting less-developed social protection systems in many countries.
IMF favours targeted cash transfers
The IMF found that targeted transfers are the most efficient approach for assisting vulnerable households.
Such programmes channel support directly to people most in need while requiring fewer fiscal resources than broad price interventions.
They also preserve market price signals. Higher prices caused by shortages can encourage consumers to reduce demand where possible, helping supply and demand move back towards balance.
By contrast, broad measures that suppress prices can reduce headline inflation and help prevent inflation expectations from becoming unanchored, while supporting consumption across households.
However, they can impose significantly higher costs on government budgets.
The IMF estimates that consumer subsidies, including cuts in value-added tax or excise duties on essential products, can require three to six times as much fiscal spending as targeted transfers to provide vulnerable households with a comparable level of support.
Producer subsidies can be even more expensive, potentially costing governments many times more than targeted assistance.
Producer subsidies risk benefiting consumers abroad
The IMF said producer subsidies were particularly inefficient because governments intervene earlier in the supply chain to reduce the cost of raw materials or intermediate goods.
While those measures can lower domestic production costs, some of the resulting goods may subsequently be exported at lower prices.
That means domestic taxpayers can effectively bear part of the cost of subsidising consumers in other countries.
Advanced economies have tended to rely more on reductions in VAT or excise duties for essential goods, directly lowering prices paid by consumers.
Emerging and developing economies, meanwhile, have more frequently used producer subsidies, price controls or tariff reductions to reduce costs further up the supply chain.
The IMF said strengthening social protection systems would give governments greater scope to use targeted assistance rather than costly broad-based subsidies when future shocks occur.
Thai consumer confidence falls in September
Thailand continues to face its own cost-of-living pressures, with consumer confidence declining in September.
The Trade Policy and Strategy Office (TPSO) surveyed 5,424 people nationwide and found that its overall consumer confidence index fell to 48.9 in September from 49.5 in August.
The reading remained below the confidence threshold of 50.
Government measures, particularly the Thais Help Thais Plus programme, have helped ease living costs and support purchasing power, while exports have continued to expand.
However, TPSO said consumers remained concerned about high living costs and household debt, as well as political uncertainty and risks facing the global economy.
The findings underline the policy choices facing governments as they respond to cost-of-living pressures: broad measures can deliver immediate relief across the population, while targeted transfers can concentrate assistance on vulnerable groups at a substantially lower fiscal cost.
