IMF energy subsidy warning for LatAm

Latin American nations must "dismantle" long-standing energy subsidies to encourage investment and propel economic growth, the IMF has warned.

According to the IMF's latest Regional Economic Outlook, some LatAm countries spend more on subsidies for fuel and electric power than they do on health and education.

"They [subsidies] may give rise to fiscal sustainability concerns, particularly when open ended [and] in many countries they are the major factor driving fiscal deficits," the report said.

The IMF added that energy subsidies in Venezuela were equivalent to 50% of the country's tax revenue pool in 2013. In Ecuador the figure was 40%, in Haiti 35%, Bolivia 25% and Argentina 19%.

The report claimed the policy prompted "domestic payment arrears" which are "difficult to unwind."

In addition, subsidies hurt growth, efficiency and competitiveness, the IMF said, adding: "Mispricing tends to be associated with underinvestment in energy, not only when the sector is not compensated, but when energy prices fall below their opportunity cost."

The IMF called on the region's governments to remove energy subsidies "pragmatically and gradually."

"A main objective should be to depoliticize the price setting of the subsidized product, either by allowing the market to set prices or by adopting an automatic adjustment mechanism," the report said.