The world energy markets have gone through a tumultuous period since late 2021. Globally, energy prices have soared – owing to recovery from the COVID pandemic, significant supply side bottlenecks coupled with the conflict in Ukraine. Increasing energy prices have become a considerable challenge to many developing countries: on one hand to manage the fiscal and balance of payments repercussions and on the other hand, manage the implications on the poor and vulnerable. Responding mainly to the latter, many countries have resorted to energy subsidies and in most instances blanket subsidies. This has aggravated fiscal and balance of payment imbalances accentuating fragility of countries. It has also served to distance climate goals and energy transition plans. Continuation of such policies could undermine and reverse human development achievements in many countries.

These policy recommendations aim to provide some guidance to policymakers on how to effectively position energy prices to avoid economic catastrophes whilst keeping nations on-track to meet their climate ambitions and energy transition goals.