International Monetary Fund chief Christine Lagarde is calling on countries to shift funds away from oil subsidies towards social safety nets and policies that support growth and jobs.
Speaking at a seminar on inequality at the annual IMF and World Bank meetings in Washington, Ms Lagarde noted that global fossil fuel subsidies now amount to around US$2 trillion (S$2.6 trillion) - money that could be deployed more effectively to narrow the income gap.
The proposal was one of three strategies she highlighted to address an inequality problem that has reached "critical levels".
The other two were to engage in structural reforms - especially in the euro zone - and to increase spending on infrastructure projects.
"What we're saying is not investment infrastructure everywhere at any cost, at any rate, at whatever terms. It has to be efficient, it has to respond to a need," she said.
She said that many countries have clear infrastructure gaps. India, for instance, still has 300 million people who do not have access to electricity.
Ms Lagarde repeated her earlier warning that global growth ahead appeared uneven and brittle, and said that inequality and high unemployment were key factors contributing to the risk of a mediocre growth spurt.
Many of this week's meetings are expected to focus on that mediocre growth, as global leaders look for ways to jumpstart a global economy that has failed to move back into top gear after stalling during the 2008 global financial crisis.
The IMF has this week cut its global economic growth forecast for this year to 3.3 per cent, down 0.4 percentage points from its projection in April. And while numbers have been disappointing across the board - both developed and emerging economies are underperforming - Europe remains the source of most concern for the multilateral lender.
The IMF is estimating that there is now a 40 per cent chance that the euro zone would slip into its third recession since the financial crisis.
Growth aside, the finance ministers and heads of central banks who are gathering in Washington will likely also have to grapple with the economic impact of current global challenges like the outbreak of Ebola in West Africa.
Today, Ms Lagarde and World Bank president Jim Yong Kim as well as United Nations Secretary- General Ban Ki Moon are due to hold a meeting with the leaders of Guinea, Liberia and Sierra Leone, worst hit by the disease.
A new economic impact assessment by the World Bank Group forecasts that an out-of-control outbreak could cost the economies in the region up to US$32 billion by the end of next year.
The meetings this week will also likely have to deal with the stalled IMF 2010 quota reforms. The United States - the largest shareholder in the IMF - has yet to ratify those reforms.
And since those reforms dictate how much each country should donate to the IMF's operating budget, the institution is now forced to rely on ad-hoc loans to operate.
This article was first published on Oct 9, 2014.
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