Energy efficiency becomes fiscal policy tool

…as IMF warns energy importers like Ghana face ‘asymmetric’ economic pain

By Joshua Worlasi AMLANU, Washington D.C

[email protected]

Ghana, along with other energy-importing economies, faces a renewed policy squeeze as the International Monetary Fund warns that rising global energy costs linked to geopolitical conflict are disproportionately hitting countries with limited fiscal space, forcing a shift toward energy efficiency as a core macroeconomic adjustment tool.

The IMF’s Managing Director Kristalina Georgieva said the global economy is already absorbing significant spillovers from the Middle East conflict, with growth expected to slow to 3.1 percent in 2026 from 3.4 percent the previous year. In a more adverse scenario, growth could drop to 2 percent, reflecting persistent supply disruptions and elevated oil prices.

“The shock is global,” Ms. Georgieva said. “All countries are affected by higher energy prices. But the negative impact is highly asymmetric, with the biggest burdens falling on countries that import energy and have limited policy space.”

For Ghana, the implications are immediate. As an economy exposed to imported refined petroleum products and operating under tight fiscal conditions, the country sits squarely within the vulnerability profile outlined by the IMF. The Fund’s assessment points to a narrowing set of policy options, where traditional responses—such as subsidies or broad tax relief—risk undermining fiscal credibility.

Instead, the IMF is placing increasing emphasis on demand-side adjustment, positioning energy efficiency not as a technical intervention but as a macroeconomic stabilisation strategy.

Supply shock, slowing growth

The IMF’s latest projections reflect a deterioration in the global outlook driven by infrastructure damage among the GCC countries affected by the US-Iran war, disrupted transport routes and tighter energy markets. Even in the event of a short-lived conflict, the lag in supply chain recovery is expected to prolong the economic impact.

Ms. Georgieva highlighted the structural nature of the disruption, noting that physical supply constraints are already emerging across key commodities, including oil, gas and industrial inputs. “We are already seeing… shortages in place, not only of oil and gas, but also of naphtha, of helium,” she said. “The effects are not going to evaporate overnight, even if the war ends tomorrow.”

The delay is partly logistical. Tanker movements, she noted, can take weeks to adjust, meaning supply gaps may widen before stabilising. The coming months is expected to be more challenging than March as earlier shipments are exhausted without replacement flows.

This lagged transmission is critical for economies like Ghana, where external shocks often materialise with a delay but can have more persistent inflationary and fiscal effects once they do.

Inflation risks extend beyond energy

The IMF warned that the current shock is not confined to energy markets. Disruptions to fertiliser supply chains are already feeding into broader inflation risks, particularly in food systems.

The Fund’s managing director cited a doubling of urea prices in Africa, from US$400 to US$800, as an early indicator of second-round effects. “These are dangerous developments,” she said, warning that higher fertiliser costs could translate into increased food prices if supply conditions do not normalise.

For Ghana, where food inflation remains a key component of headline inflation, the transmission channel from energy to agriculture introduces an additional layer of complexity. Higher input costs for farmers could undermine disinflation efforts and intensify pressure on household incomes.

The IMF noted that inflation expectations have already shifted in the short term, even as longer-term expectations remain relatively anchored. This creates a narrow window for policy-makers to manage the shock without triggering broader instability.

Monetary policy: Limited room for error

The Fund has offered a delicate balance of guidance to central banks. For countries with strong policy credibility and anchored expectations, a “wait and see” approach may be appropriate. However, for others, earlier intervention may be required.

“What we tell central banks is if you have high credibility… don’t rush. Wait to see how conditions would evolve,” Ms. Georgieva said. “But for central banks that do not have that credibility, they may need to utilise stronger signals.”

This differentiation is particularly relevant for the Bank of Ghana, where recent gains in stabilising inflation and the exchange rate remain sensitive to external shocks. A premature tightening cycle could weigh on growth, while delayed action risks un-anchoring expectations if imported inflation accelerates.

Key  to the IMF’s broader guidance is the importance of policy calibration, with monetary authorities expected to balance price stability objectives against the transitory nature of supply-driven inflation.

Fiscal constraints and policy trade-offs

Regarding the fiscal constraints and policy trade-offs, the more binding constraint, however, lies on the fiscal side. The IMF reiterated that global public debt is on track to exceed 100 percent of GDP by 2029, a level not seen since the aftermath of World War II. For countries already managing elevated debt levels, this limits the scope for expansionary responses.

“We have been warning for some time that public debt is constraining fiscal space,” Ms. Georgieva said, adding that the cumulative effect of successive shocks has pushed debt “to dangerously high levels.”

In this context, the IMF cautioned against untargeted fiscal measures, including broad-based subsidies, tax cuts and price controls. While politically appealing, such interventions risk prolonging inflationary pressures and weakening fiscal sustainability.

“While the intention behind these measures may be good… such untargeted actions will only prolong the pain of high prices,” she said.

Given Ghana’s past reliance on tax adjustments and energy-related interventions to cushion households, the current environment suggests the IMF favours more targeted and fiscally disciplined policy responses.

Energy efficiency as policy lever

Against this backdrop, the IMF is advocating for immediate measures to reduce energy demand. The recommendations, ranging from incentivising public transport use to promoting remote work, reflect a broader shift toward efficiency-driven adjustment.

“Use measures that can economise energy,” Ms. Georgieva said, “putting in place incentives like ‘make public transport free’… or ‘work from home’… or switch to less energy-intensive activities.”

These proposals mirror responses adopted during previous crises, including Europe’s adjustment away from Russian energy dependence, which combined diversification with significant efficiency gains.

In the case of Ghana, the relevance lies in the cost-effectiveness of such measures. Unlike subsidies, which impose direct fiscal costs, efficiency improvements can moderate demand without exacerbating budget pressures. This positions energy efficiency as a form of “implicit fiscal policy,” enabling governments to manage external shocks through behavioural and structural adjustments rather than direct spending.

Structural reform imperative

Beyond the immediate response, the IMF emphasised the need to maintain focus on medium-term reforms. The current shock, Ms. Georgieva said, should not derail efforts to enhance productivity, strengthen institutions and build economic resilience.

“We must adapt our policy to these long-term trends by accelerating growth-oriented reforms,” she said. “A strong economy is the best buffer.”

The IMF identified several structural forces – technology, demographics and climate change – as ongoing drivers of economic transformation. While these trends present challenges, they also offer opportunities to strengthen growth and reduce vulnerability to external shocks.

This reinforces the importance of reforms in the country aimed at improving energy infrastructure, diversifying supply sources and enhancing efficiency across sectors.

The IMF also highlighted the role of financial sector policies in maintaining stability amid heightened uncertainty. Strong supervision, enhanced risk monitoring and tighter oversight of non-bank financial institutions are seen as critical in managing potential spillovers.

With global financial conditions tightening, the risk of higher borrowing costs adds another layer of pressure for emerging and frontier markets. Prolonged energy insecurity could further dampen economic activity by raising financing costs and constraining investment.

IMF support and regional focus

The Fund expects near-term demand for financial support to range between US$20 billion and US$50 billion, reflecting both augmentations of existing programmes and new arrangements. At least a dozen countries, many in sub-Saharan Africa, are anticipated to seek assistance.

“We are prepared and we would move very swiftly to respond to requests,” Ms. Georgieva said, urging countries to act early if financing needs arise.

The IMF is also coordinating with institutions, including the World Bank and the International Energy Agency, to align responses. In parallel, it continues to refine its policy toolkit through reviews of programme design, surveillance and conditionality.

Discussions on sovereign debt, including through the Global Sovereign Debt Roundtable, remain central to addressing structural vulnerabilities.

The IMF’s assessment underscores a global environment defined by repeated shocks, constrained policy space and uneven impact across countries. For Ghana, the combination of these factors heightens the importance of policy discipline and adaptability.

The current shock is expected to propagate through three main channels: reduced output due to supply constraints, higher inflation driven by energy and food prices, and tighter financial conditions. While these effects may ease over time, the near-term impact is likely to be significant.

In this context, the IMF’s emphasis on energy efficiency represents a pragmatic response to a constrained policy environment. By reducing demand rather than subsidising supply, governments can mitigate the economic impact of external shocks while preserving fiscal sustainability.

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