IMF Works with Vulnerable States on Food Price Policies

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The IMF is working with vulnerable member countries to assess the fiscal, balance of payments, and income effects of higher food prices and of higher commodity prices more generally.

Several countries have asked for extra financial support to cover higher food import costs, and an IMF mission will shortly travel to Haiti to review the country's need for increased financial assistance.

External Relations Department Director Masood Ahmed said at an April 24 news conference that the IMF is also "working with the member countries that are likely to be affected to assess the impact of the higher food prices, and of higher commodity prices more generally, on their balance of payments and fiscal situation."

The impact of food price increases on the most vulnerable populations, notably the urban poor, has significant social implications-as attested by recent food riots and strikes in several African countries. Many sub-Saharan African countries have resorted to emergency measures in response to a food price situation that is still evolving.

IMF research shows that higher prices for food pose new challenges for African policymakers, in particular, and could have especially adverse effects on the poor because food represents a larger share of what poorer consumers buy.

Follow-up action

In response, the IMF is acting on several fronts:

* Additional financing. About 10 countries, mostly in Africa, have raised with the IMF the possibility of augmenting their existing arrangements under the Poverty Reduction and Growth Facility (PRGF) to provide for additional financing to cover the import costs associated with higher food prices. "We are now discussing those on a priority basis with each of the countries and our objective is that, where it makes sense to indeed augment the PRGF, we should proceed," Ahmed said.

* Help with policy response. The IMF is further working with the PRGF-eligible countries and with other economies on the appropriate policy response to higher food prices. Although policies need to be determined country by country, targeted social assistance is seen as the best initial policy, with other temporary moves-such as tax and tariff cuts on food products-also available as supporting measures.

* Use of IMF financing. The IMF has several financing instruments available to help members...