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October 2, 2026/IMFBlog
Governments deployed a wide range of measures as the energy shock unfolded, reflecting different domestic economic conditions. Targeting remains essential.
By Era Dabla-Norris, Antonio C. David, Daria Zakharova, Aleksandra Zdzienicka
Countries’ responses to the energy shock triggered by the Middle East war varied significantly—and evolved as the shock persisted.
Some governments moved quickly to deploy tax cuts, subsidies, and household transfers to shield families and businesses from higher prices. While those who allowed more of the increase in global energy costs to pass through to domestic prices relied more heavily on monetary, financial, and real-economy measures.
As the shock continued and pressures on public finances mounted, the overall policy mix has evolved. Countries moved from “fiscal shields” toward greater price pass-through and demand-management measures. Monetary measures also gained importance, particularly in countries where inflation was already above historical norms.
More recently, about half of the measures named a beneficiary group, compared with around 30 percent during the first phase of the shock, which could imply better targeting. However, as the shock persisted fewer measures were announced with a clear end date.
The latest release of the IMF Global Policy Tracker makes it possible to compare how countries responded and how their policies evolved from late February to mid-September. The Tracker captures more than 1,200 announced measures across 175 economies and classifies policy tools consistently across countries. It combines AI-assisted searches of public announcements with IMF expert review and validation by country teams. As more information becomes available, the Tracker will also monitor how measures are being implemented, adjusted, or removed.
What shaped countries’ choices
New IMF research shows that the extent of countries’ exposure to the Middle East shock mattered but did not alone determine the response. Policy choices also reflected public debt levels, financing conditions, inflation, reserve buffers, existing pricing systems, and institutional capacity.
The most critical choice for governments is between using budget resources to cushion the shock—for example with subsidies or tax cuts—and allowing domestic prices to adjust. Among economies more exposed to the energy-price shock, higher public debt was associated with more measures allowing prices to pass through to consumers. Countries where inflation was already elevated also announced a larger share of monetary policy measures, including raising policy rates and increasing lending and deposit facility rates.
Financing conditions reinforced this pattern. When sovereign spreads widened, the more exposed countries allowed prices to increase and used less subsidies, tax cuts and direct transfers, all of which have immediate budget implications.
Fiscal constraints affected household support in particular. As debt rose, more exposed countries devoted a smaller share of their response to household transfers – which are, by design, more targeted – yet they continued to rely on producer subsidies. Administrative capacity may help explain the difference. Reaching millions of households requires reliable social registries and payment systems. Assisting a smaller number of producers may be operationally easier.
Other policy choices reflected different constraints. Countries with stronger reserves supported greater use of foreign exchange intervention and financial stabilization tools. Demand management measures—including rationing, conservation requirements, shorter workweeks, and remote-work arrangements—became more prominent as the shock continued.
Policy lessons
Countries deployed a diverse—and innovative—range of measures as the shock evolved. Yet the core policy lessons remain unchanged.
Countries with stronger fiscal and external buffers had more options, while those facing high debt or tighter financing conditions relied more on immediate price adjustment and measures to reduce demand. Policy frameworks and institutional capacity matter too. Investing in effective social registries and payment systems can yield substantial benefits by improving targeting, speeding delivery, and lowering fiscal costs. Predictable pricing frameworks can also help governments to respond faster.
Targeting remains essential, particularly when resources are scarce and debt is elevated. But support must also be flexible. As the shock changes in duration, intensity, or direction, governments need to adjust the mix, scale, and design of their measures. Real-time tracking can help them detect these shifts early and refine their response while the shock is still unfolding, helping them deliver cost-effective support.