São Paulo – Energy subsidies are among the most damaging practices to countries’ economies; they drive up power bills, reduce investment capacity and, opposite to what should happen, they favour the richest and burden the poorest. So says s paper released last Wednesday (27th) by the International Monetary Fund (IMF). According to the Fund, the practice is most widely used in the Middle East and North Africa.
In the report <i>Energy Subsidy Reform: Lessons and Implications</i>, the IMF claims that a practice that is meant to cushion consumers against high energy costs has the opposite effects on economies, because it aggravates fiscal imbalances, crowds out private investment, reduces incentives for renewable energy investment and thus accelerates the depletion of natural resources.
According to the IMF, energy subsidies cause people to consume more power than they actually need. The institution claims that if there were no incentives, emissions of carbon dioxide, the main culprit of the greenhouse effect, would be 13% lower.
The IMF survey was based on data from 176 countries, and considers incentives for coal-, oil-, electricity- and natural gas-based energy. The survey points out that in 2011 these countries spent a combined US$ 1.9 trillion on subsidies, an amount equivalent to 2.5% of the global Gross Domestic Product (GDP).
Some countries have offered a different type of subsidy. These are what the IMF labels “pre-tax” subsidies, which amounted to US$ 480 billion in 2011, in places where the price paid by consumers was lower than the actual cost of energy. Of the US$ 480 billion in “pre-tax” subsidies granted, US$ 240 billion were in Middle East and North Africa countries.
The Fund advises on the implementation of six measures for tapering down subsidies: long-term energy sector reform; increased transparency of subsidy policy; gradual increase of price and specific bills for different types of consumers; increased efficiency of state-owned utilities; measures to shield the poorest; and implementation of mechanisms to protect prices from political pressure.
The top spenders on subsidies include the oil exporting countries. However, according to the Fund, oil importing countries are also plagued by the practice, because energy importation burdens importers’ bills, and encourages illegal importation when energy costs hike. The IMF director for the Middle East and Central Asia, Masood Ahmed, said subsidies take up a large portion of the budgets of energy-importing governments. These, in turn, often must deal with growing deficits and debts.
“Of all regions of the world, the Middle East and North Africa remain those in which the most energy subsidies are granted,” said Ahmed in an interview on the IMF website. “That is as much as a quarter of the budget of some of these countries,” he said.
*Translated by Gabriel Pomerancblum
