BANGKOK: — Lower global fuel prices will allow developing East Asian economies to abolish fuel subsidies and raise energy taxes to close fiscal gaps, according to a World Bank report.
The Brunei Times quoted the Washington-based lender as saying that East Asian and Pacific economies should use this opportunity to reform their energy pricing scheme as this will have a “muted impact on politically sensitive domestic consumer prices”.
“Such measure will discourage wasteful consumption, minimise resource misallocation in production, strengthen government finances and boost current accounts,” the World Bank said in its latest report on East Asian and Pacific economies.
The subsidies, which vary across the countries, have been putting a strain on public finances particularly in fuel exporting economies.
Fuel subsidies in Indonesia for 2013 amounted to 2.2 per cent of its gross domestic product (GDP) or almost 20 per cent of the central government’s total budget expenditure. The amount is also more than 1.5 times the health budget, according to the World Bank.
As for Malaysia, fuel subsidies amounted to 2.4 per cent of its GDP which is equivalent to half its education budget and over 1.3 times of its health budget.
“These subsidies, in addition to draining government fiscal resources, have at times also forced state-owned companies to divert resources away from investment spending,” the World Bank said.
The subsidies have also weakened current account balances, encouraged excess fuel consumption and discouraged key imports.
In Thailand, fuel imports in the recent years have amounted to over 12 per cent of its GDP and about 82 per cent of capital goods imports.
The World Bank said these countries need to cut fuel subsidies, increase fuel taxes and reduce the financial strain on national accounts.
Indonesia is expected to save about 1.8 per cent of its GDP with susbsidy reforms in 2015 while in Vietnam, fuel taxes will absorb some of the impact in reduced fiscal revenues due to lower oil prices.
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