Impacts of high and volatile oil
prices and policy choices
Shikha Jha
Country-level impacts




Trade balance
Inflation
Fiscal balance
Households
Winners and losers of global food and oil price
fluctuations
Net commodity export position of selected countries (% of GDP)
Corn
Wheat
Soy
Rice
Oil
Gas
Coal
Rubber
Palm
TOTAL
PRC
0.0
0.0
-0.4
0.0
-2.0
-0.2
-0.2
-0.1
-0.1
-3.0
HKG
0.0
0.0
0.0
-0.1
-6.1
-0.5
-0.5
0.0
0.0
-7.2
IND
0.0
0.0
0.0
0.2
-2.3
0.0
-0.8
0.0
0.0
-2.9
INO
-0.1
-0.3
-0.1
-0.2
-1.0
2.5
3.0
1.4
2.0
7.2
KOR
-0.2
-0.1
-0.1
0.0
-6.1
-2.7
-1.6
-0.2
0.0
-11.1
MAL
-0.3
-0.2
-0.1
-0.2
1.8
6.1
-0.8
0.7
5.4
12.4
PHI
0.0
-0.4
0.0
-0.2
-3.7
-0.2
-0.2
0.0
0.0
-4.7
SIN
0.0
0.0
0.0
-0.1
-3.4
-1.8
0.0
0.0
-0.2
-5.5
TAP
0.0
0.0
0.0
-0.5
-5.1
-2.0
-2.0
0.1
-0.1
-9.5
THA
0.0
-0.1
-0.3
1.9
-9.1
-1.4
-0.4
3.8
0.1
-5.5
Note: Darker red cells = biggest net importer of that commodity , lighter green cells = largest net exporter of
that commodity
Source: Credit Suisse. 2012. Asia: Winners and losers from commodity price moves. 13 Aug.
Higher energy prices add to inflation
• Energy carries a large weight in CPI
– Headline versus core inflation
• High energy prices increase inflation
– First and second-round effects
High subsidies imply high fiscal deficits
• Countries that subsidize more of gasoline, diesel,
or kerosene run relatively higher fiscal deficits1
–
–
–
–
–
Bangladesh
Lao PDR
Pakistan
Sri Lanka
Viet Nam
• The fiscal cost of fuel tax decreases and higher
fuel subsidies accounted for average 63% of the
total increase in fiscal cost between 2006 & 20082
1Source:
Jha et al (2009) , 2 IMF (2008)
Fiscal buffers have declined with fiscal stimulus
Fiscal balance (% of GDP)
2008
2011
2008
2011
VIE
SRI
PAK
NEP
MAL
IND
BHU
BAN
AFG
-12
THA
-10
SIN
-8
PHI
-6
MYA
-4
MAL
-2
LAO
0
INO
2
1
0
-1
-2
-3
-4
-5
-6
-7
-8
CAM
2
Public debt-GDP (%)
Higher fiscal deficits are associated
with higher public debts
90
80
70
60
50
40
30
20
10
0
-8
-6
-4
-2
0
2
4
Fiscal deficit-GDP
6
8
10
Sources: ADB 2008a; CEIC Data Company, Ltd.; Economic Intelligence Unit country reports; IMF country reports; Bank
Negara Malaysia; Bureau of the Treasury, Philippines; Central Bank of Sri Lanka; Directorate General of Debt Management,
Indonesia; Maldives Monetary Authority Monthly Statistical Report; Ministry of Finance, India; Ministry of Finance, Pakistan;
Ministry of Finance, Thailand; Ministry of Strategy and Finance, Korea; National Bureau of Statistics of China.
Most of the world’s poor live in Asia
Share of population living below
$1.25-a-day poverty line, 2008
Develop
ing Asia
63%
Rest of
the
World
Sub 4%
Saharan
Africa
33%
Home to 2/3rd of the
world’s poor
The poor spend larger %
of income on energy
… and get much higher
energy price shock than
the rich
Source: 2011. Wan and Sebastian. Poverty in Asia and the Pacific: An Update
8
Impacts on living standards
• Reduced consumption of fuels and changes energy
composition (traditional and commercial)
• Costlier heating & cooking worsen the poor’s
standard of living
• Adversely affect women and children
• Higher household expenditure on fuels reduce
purchasing power and health & education spending
Policy choices to reduce trade deficit
• Set domestic prices right to create demand response
• Seek local sources of energy
• Improve energy efficiency
Policy choices to reduce fiscal deficit
and debt
• By not fully passing on the world oil prices, governments
risk incurring large fiscal costs and public debt
• Integrate subsidies financed through off-budget funds into
the budget process to make fiscal risks transparent
• Reduce unproductive expenditures which reduce the
impact of fiscal measures
– minimize waste, inefficiency, pilferage and leakage
• Establish a debt stabilization program.
Policies to reduce the Social Cost
• Target fuel subsidies at the poor (e.g., coupons or voucher
schemes).
• Introduce direct income support for the affected poor (extend
existing schemes, such as CCTs, or introduce new schemes).
• Strengthen automatic stabilizers (unemployment benefits,
state transfers & taxes)