Winners and losers of global food and oil price fluctuations CornWheatSoyRice Oil GasCoalRubberPalmTOTAL PRC0.0 -0.40.0 -2.0 -0.2 -0.1 -3.0 HKG0.0 -0.1 -6.1 -0.5 0.0 -7.2 IND0.0 0.2 -2.3 0.0-0.80.0 -2.9 INO-0.1-0.3-0.1-0.2 2.53.01.42.07.2 KOR-0.2-0.1 0.0 -6.1 -2.7-1.6-0.20.0-11.1 MAL-0.3-0.2-0.1-0.2 1.8 6.1-0.80.75.412.4 PHI0.0-0.40.0-0.2 -3.7 -0.2 0.0 -4.7 SIN0.0 -0.1 -3.4 -1.80.0 -0.2-5.5 TAP0.0 -0.5 -5.1 -2.0 0.1-0.1-9.5 THA0.0-0.1-0.31.9 -9.1 -1.4-0.43.80.1-5.5 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. Net commodity export position of selected countries (% of GDP)
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 deficits 1 – 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 & 2008 2 1 Source: Jha et al (2009), 2 IMF (2008)
Fiscal buffers have declined with fiscal stimulus Fiscal balance (% of GDP)
Higher fiscal deficits are associated with higher public debts 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 8 Source: 2011. Wan and Sebastian. Poverty in Asia and the Pacific: An Update Home to 2/3 rd of the world’s poor The poor spend larger % of income on energy … and get much higher energy price shock than the rich Share of population living below $1.25-a-day poverty line, 2008
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)