Aug 28, 2014

Energy subsidies in Southeast Asia

There is a blog post in Asia Pathways which briefly discusses the policy issue of energy subsidies in Southeast Asia.

Asia Pathways, a blog related to ADB, has just posted a new article about the energy subsidies in Southeast Asia. This topic has now become an important policy issue faced by policy makers in several countries in the region.

Southeast Asia’s energy subsidies are a tax on development
By Ian Coxhead

The author argued:

One important piece of the political puzzle is the dissonance between perceptions and reality on the incidence of fuel subsidies. The focus of policymakers, most researchers, and those directly affected by the subsidies is on consumer spending on fuel, with the widespread belief that subsidies favor the poor. In fact, the opposite is probably true, as recent studies on Indonesia7 and Viet Nam8 reveal. Meanwhile, the hidden costs of crowding-out in capital markets and under-investment in infrastructure, education and other services, together with the related indirect effects of the net subsidy on employment and real household incomes, seldom enter into the public debate.

Reducing or removing energy subsidies in Southeast Asian economies is not a panacea, and there are many steps between ensuring a balance between diminishing scarce fiscal resources and enhancing economic development. But subsidy reductions are definitely a low-hanging fruit for economic policy reform, and could be an important step toward more sustained growth and a more sustainable and equitable future in the region.


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