ASEAN KEY DESTINATIONS
Fuel subsidy reforms boost some ASEAN gov’t savings
FUEL subsidy reforms have helped some ASEAN countries offset some of their fiscal challenges as global commodity prices tumbled due to oversupply, the World Bank said in its latest economic update for East Asia and the Pacific released the day before yesterday.
According to the report entitled “Staying the Course” East Asia and Pacific Economic Update (October), Malaysia, Indonesia and Vietnam reduced their fuel subsidies which boosted their government savings.
At the end of 2014, the Malaysian government abolished gasoline and diesel subsidies, yielding budgeted savings of US$2.6 billion for 2015.
In Indonesia, where oil and gas related revenues accounted for 20 per cent of government revenues in recent years, gasoline and diesel subsidies were capped at a relatively low Rp1,000 per litre.
This effectively trimmed the fuel subsidy costs for 2015 down to 0.6 per cent of Indonesia’s gross domestic product (GDP) from the 2.4 per cent of GDP outturn in 2014.
Vietnam managed to triple its environmental tax on fuel consumption by raising fuel prices and tariffs on fuel imports from 18 per cent in May 2013 to 27 per cent in December 2014 and 25 per cent in January 2015.
On a broader level, the report said that fiscal policies in Malaysia and Indonesia were adjusted to adapt to weaker global prices for energy and other commodities.
Malaysia revised down its oil price budget assumption to US$55 per barrel from US$100 per barrel in the original which slightly lifted the 2015 deficit target to 3.2 per cent of GDP.
Indonesia also adjusted its oil and gas revenues projections sharply by offsetting it with large increases in non-oil and gas tax revenues, lifting the budgeted GDP-to-tax ration by 1.4 percentage points from 2014.
In the Philippines, the report said that fiscal deficits have narrowed significantly, from 2.7 per cent of GDP in 2009 to just 0.6 per cent in 2014.
Sound revenue and debt management in the context of a robust macroeconomic backdrop and falling borrowing costs helped bring down government debt to 45 per cent of GDP in 2014.
However, the pace of deficit reduction has been flattered by weak budget execution, indicating constraints with institutional capacity, said the report.
In the small developing ASEAN economies, financial pressures remained “contained” with some countries experiencing increasing public revenue and narrowing their deficit.
The report said that Cambodia lifted public revenues markedly to 17 per cent of GDP in 2014 while keeping expenditure at 20 per cent.
It added that Lao PDR “appears on track” to meet its current year deficit target of 4.1 per cent of GDP with growth in taxes for value-added and excise, offsetting weaker mining revenues. “Public debt levels, however, remain significant, with external debt above 50 per cent of GDP,” said the report.
The World Bank’s East Asia and Pacific update is a comprehensive review of the region’s economies and published twice annually.
Letters that do not contain full contact information cannot be published.
Letters become the property of AseanAffairs and may be republished in any format.
They typically run 150 words or less and may be edited
submit your comment in the box below