Some countries have already moved to peel back subsidies in recent years, while others have done the opposite:
Petroleum prices were increased three times between March 2005 and May 2008. To help offset the impact on the poorest, a temporary cash transfer programme was introduced in 2005. A similar cash transfer accompanied the 2008 price increase. Budgetary savings from subsidy cuts were diverted to education, health and infrastructure programmes that benefit low and middle income households.
Energy prices rose by up to 20 times in 2010 as the government sought to slash its spending. Annual subsidies of about US$700 per capita were removed as a result of the action. Rising domestic energy consumption strained the availability of fuel for export. The reform was preceded by a public education campaign informing Iranians of the amount of consumption through subsidised energy.
In an attempt to gradually liberalise fixed petrol prices, the Government lifted prices twice in 2010. The move was designed to reduce pressure on retailers and to slow rapid consumption growth. Despite the double rise – a total of up to 27 per cent, depending on the grade of fuel – petrol retailers said they were still losing money. The country still has the fifth-cheapest petrol prices in the world at $1.77 per gallon, according to the Bloomberg Gas Price Ranking.
At a time when most other countries are looking to scale back subsidies, India is one of the exceptions. The parliament’s upper house passed an historic food subsidy law this month, legislation aimed at easing hunger and poverty among the world’s second-most populous country. Spending on offsetting the price of basic goods will rise by $4 billion annually to $20bn, estimate officials. But Moody’s Investors Service has been among credit rating agencies to warn the measure would exacerbate India’s already shaky public finances.
Days before being outsed, the former Egypt president Mohammed Morsi passed a law raising public expenditure on energy subsidies by $2.8bn. The move was a reflection of the struggle previous governments have had to push through reform of one of the Arab world’s most costly social safety nets. Still, the cabinet of the current interim regime has voiced a willingness to finally grasp the nettle. This month, the finance minister Ahmed Galal announced plans to close the gap between global and domestic energy prices over the next two to three years.
Eight years ago, Jordan first began raising petrol prices, a process it has carried on through to this year. Still, subsidy reform has remained controversial. Hundreds of taxi drivers blockaded the streets of Amman last week in protest at a government move to hike fuel prices by up to 10 per cent. It follows a fuel rise of up to 12 per cent in June. A $2bn loan deal with the IMF was conditional on cuts in fuel subsidies and rises in electricity tariffs.
Protests have followed controversial subsidy cuts in Morocco. A handful of ministers including the finance minister resigned from the coalition government in July, partly because they disagreed with a deregulation of price of basic goods. The previous month prices of fuel subsidies were lifted by up to 27 per cent. Rises in utility tariffs are also planned as the government faces pressure from the IMF to reform the subsidy system in return for a two-year, $6.2bn precautionary credit line.
Another government the IMF has leaned on to bring prices closer to market costs, Tunisia has already taken steps to reform. In March, the government increased energy and electricity prices by 7 per cent, the second such move in six months. The move was accompanied by a rise in cash transfers to lower income households. The latest increase was expected to generate total savings of about 1 per cent of GDP, estimated the authorities. It follows the country securing a $1.74bn in a loan over two years from the Washington-based institution in June.