There are very few things on which economists overwhelmingly agree: free trade and apple pie are about it. But almost all of them will say that across-the-board subsidies for households and companies to lower the price of fuel are a terrible idea.
While advanced economies in general tax fossil fuels – or the carbon emissions that emanate from its use – emerging markets are still big users of subsidies and price caps. The IMF estimates that consumption of petroleum, electricity, natural gas and coal were subsidised by about 2 per cent of total government revenue in 2011 – and much more if compared to a hypothetical efficient tax system. Hydrocarbon exporters accounted for about two-thirds of the total. The subsidy of fossil fuels by oil producers and particularly within the Middle East and North Africa is extreme. Read more
The formal World Trade Organisation gathering in Bali in early December already has some strongly positive news – a global trade deal is on the cards – a rare and big achievement.
But some issues are still a bit thorny – take cotton. In the past, African governments lambasted the US and EU for their cotton subsidies. Now it’s India and China that they should worry about. Read more
By Dalibor Rohac of the Cato Institute
Following the military takeover and the bloody crackdown on the followers of the Muslim Brotherhood, Egypt has been living through intermittent violence and unrest. Incidence of violence directed against the country’s Coptic minority seems to be on the rise, as does the activity of Islamists operating in the Sinai Peninsula. In short, this seems to be a very odd moment to discuss the arcane details of Egypt’s subsidy programmes.
However, the problem of energy and food subsidies is one of the most significant challenges facing Egypt today. Regardless of what political future looms for Egypt, a reform of subsidies is necessary to avert an approaching economic catastrophe. Read more
Predicting when Indonesia’s gingerly President Susilo Bambang Yudhoyono will take a tough decision is a fool’s game.
Despite suggestions from his ministers and advisers on Monday that he would finally announce a long-discussed hike in the price of subsidised fuel, on Tuesday, SBY (as he is universally known) stepped back from the brink once again. Read more
The Middle East and North African nations fall into two categories that make their economies vastly different: some are wealthy oil exporters, the rest are net importers. But they have one thing in common: subsidies, writes Ayesha Daya.
With oil prices expected to drop this year, amid sluggish global growth and unexpected supplies coming on stream in non-Opec countries, MENA’s richer nations may have to join the poorer ones in tightening their belts. Read more
Anyone ever stuck in Bangkok traffic is probably thrilled that Thai car sales are set to fall steeply this year but, perhaps surprisingly, car executives are still bullish on the country.
Why? Not because they think they can convince locals to keep buying cars for their slow commutes but because the country, despite devastating floods in 2011, is still an attractive manufacturing base for exports to the rest of the fast-growing Asean region. Read more
Under pressure from more than 40m mostly small-scale farmers and 200m other consumers, Indonesia’s government has brought in a raft of food production subsidies and import restrictions in a bid to make the world’s fourth most populous country self-sufficient in food.
But this drive to boost local farmers’ incomes and ensure a steady, affordable supply of key staples such as rice, soya beans, fruit and vegetables is “misplaced,” according to a new report by the OECD, the international think tank. Read more
Will Egypt implement much-needed energy reforms to free up government spending? It’s on the agenda given the discussions with the IMF – but Egypt has been here before.
Osama Kamal, Egypt’s oil minister, told Reuters recently that much-awaited energy subsidy cuts were still under review and would only be implemented after the government has conducted a “social dialogue” on the proposed reductions. He gave no time frame for reducing the costly subsidies which swallow up more than twenty per cent of government spending. Read more
It looks like India’s decision in mid-September to cut subsidies for diesel is starting to curb consumption of the fuel in the price-sensitive nation.
Growth in diesel consumption fell to 5 per cent in September, according to analysis by the Business Standard. That’s down from 10.4 per cent in August, 13 per cent in July and 13.7 per cent in June, according to data provided by the government’s Petroleum Planning & Analysis Cell. Read more
Is the Indian government planning – finally, and against all odds – to take its first major step toward fiscal consolidation? Is it ready, after eight long years of inaction, as it idly watched the Indian economy falter and fade, ready to put the national good ahead of its electoral ambitions?
Is it ready to take a political risk two years out from national polls?
In a word: maybe. Which doesn’t sound like much, but it’s a sight better than the resounding “absolutely not” emanating from Delhi this past year. Read more
Elections tend to be won by governments that give the people what they think they want. Thailand’s rice farmers think they want to be paid well over the odds for rice they sell to the government – and that is what has been happening under the administration of prime minister Yingluck Shinawatra since she swept to power last year.
But this populist “rice pledging” policy looks very likely to become unpopular, possibly more quickly than the government yet realises. Read more
Major automakers are considering raising diesel engine production capacity in India to capitalise on exploding demand for the highly-subsidised fuel.
Toyota Motor and Maruti Suzuki, India’s biggest carmaker, have both said in the last week that they are mulling expansion plans. Ford and Volkswagen are also looking to boost diesel engine production capacity. Read more
There was a point earlier this year when Brazil’s real looked like it could weaken well past the R$2 to the dollar.
So, given the government’s long-held desire to help Brazilian manufacturers exporters become more competitive through currency depreciation, it was something of a mystery then when the central bank stepped in earlier this year and stopped it from sliding much further.
Now we know one of the reasons perhaps that the government was keen to keep a lid on its currency war – the worst results from state-run oil company Petrobras in 13 years and most of it due to a weaker real against the dollar. Read more
Even as overall Indian auto sales have suffered over the past year, diesel vehicles have been a rare bright spot. The reason? Because of politically-sensitive government subsidies, diesel costs roughly 40 per cent less than petrol.
In the year ending March 2012, diesel cars were up a whopping 35 per cent, compared to petrol cars falling 15 per cent. Overall car sales rose 2.2 per cent – a far cry from initial forecasts by the leading trade body of 16-18 per cent (which was revised to 0-2 per cent). So what to do? Tackle the price of diesel, or make diesel cars a bit more expensive? Read more
Fuel subsidies are a divisive issue, especially in sub-Saharan Africa. The Nigerian government’s attempt to cut subsidies in January, for example, provoked a nationwide strike and violent protest and was followed by a humiliating partial climbdown.
A World Bank report published this week looks at the cost and impact of fuel subsidies in the region. It finds they benefit the rich far more than the poor and that public money could be better spent in other areas. The trouble is, poor Africans don’t trust their governments to do that. Read more
By Sarah Mishkin and Taufan Hidayat
Violent protests this week have pushed Indonesia’s opposition to reject the government’s plan to cut spending on subsidising fuel.
The subsidies accounted for 20 per cent of government total spending last year, and analysts have said that cutting is needed if the government wants to limit its deficit and make room for investing in long-term growth projects. But pushing the cuts though might be less simple than first thought. Read more
The government of a west-African country proposed this week to cut a recent hike in fuel prices by 20 per cent, after labour unions threatened to go on strike.
Sounds familiar? This isn’t Nigeria, however – where six days of strikes in January cost the economy around $1.3bn – but nearby Ghana. Read more
Juan Monteverde, an Argentine school teacher, has been waiting in line for two hours to get the smart card, SUBE, he hopes will keep his bus fares at around $0.58 .
He only takes a couple of buses a day, but has colleagues – known here as “taxi teachers” – who take as many as six to get to the classes they teach in one school in the morning, another in the afternoon and another in the evening. For them, getting the smart card is essential or their monthly transport bill is set to double. Read more