Petroleum product subsidies worldwide rising upwards

Petroleum subsidies

As the global crude prices touch new peaks, petroleum product
subsidies worldwide have started rising upwards. After declining along
with oil prices during the second half of 2008, subsidies have started
rising again, creating concerns about the fiscal costs.

A recent IMF report underlines that in 2003 global consumer subsidies
for petroleum products totalled nearly $60 billion and are projected
to reach almost $250 billion this year. Tax-Inclusive subsidies are
estimated to be much larger at $740 billion this year, which will be
1% of global GDP.

The report notes that G-20 countries account for over 70% of
tax-inclusive subsidies, with the emerging G-20 nations accounting for
a major chunk. It says that halving tax Inclusive subsidies could
reduce the fiscal deficits by one-sixth in subsidising countries and
will also help to reduce the greenhouse emissions by 15% in the long
run.

IMF projections are based on the commodity futures market which
Indicates that International crude prices will increase by almost
one-third between mid-2009 and end of 2010. Of the 58 countries with
pre-tax subsidies in 2010, 46 have a projected fiscal deficit in 2010,
with the deficit expected to exceed 3% of GDP in 27 of these
countries.

The report says reducing pre-tax subsidies by half will decrease the
average projected deficit in these subsidising countries from 2.1% to
an average deficit of 0.8% of GDP.

By reducing tax-inclusive subsidies by half, IMF estimates that the
average deficit in subsidising countries will fall by about one-sixth,
from 6 3% of GDP to around 5.3% of GDP. Whereas emerging and
developing countries account for all of projected pre-tax subsidies,
they account for 75% of tax-Inclusive subsidies. G-20 countries
account for 57% of global pre-tax subsidies but over 70% of
tax-Inclusive subsidies.

IMF calculates unit subsidies as the difference between an appropriate
benchmark price and domestic (tax-inclusive) retail prices. The
benchmark price Is taken as the International US dolla price for the
relevant product at the nearest International hub adjusted cost of
shipping the product within the country.
Financial Express, New Delhi, April 20, 2010