Energy Crisis : Protecting Economies and Enhancing Energy Security in Europe and Central Asia

This companion piece to the Fall 2022 ECA Economic Update provides an overview of the policy options available to countries to respond to the energy price shock and examines how this crisis could harness the clean energy transition to enhance collective energy security. The options to support energy markets, vulnerable households, and firms will vary, depending on specific country contexts, including exposure to gas and electricity supply risks and the fiscal space available to mitigate their impact. Well-coordinated and calibrated fiscal and monetary policies are needed to manage the impact of the price shock. Countries will also need to consider the implications of any policy choice on the transition to a greener economy and development trajectories. This note is organized as follows. Section 2 provides an overview of the broader economic impact of the energy price shock on economic growth, inflation, and public finances in the ECA region. Section 3 provides policy options to help countries adapt to the energy crisis related to managing both demand and supply. Section 4 presents a set of principles to guide the policy response for supporting vulnerable households. Section 5 presents a set of principles to guide the policy response for supporting firms. Section 6 concludes with a summary of recommendations for dealing with the crisis and transitioning to a greener economy