Black hole or black gold ? the impact of oil and gas prices on Indonesia's public finances
AbstractIndonesia's oil revenues and fuel subsidies dominate the nation's economic policy agenda. This paper estimates the impact of higher international oil prices on the Indonesian government's fiscal position in 2008 and beyond. It analyzes the interactions between government revenues and expenditures, as well as international oil prices, energy subsidies, and inter-governmental transfers. Looking at the impact of oil prices over US$100 per barrel, the paper presents five main findings. First, despite record high oil prices, the government's oil and gas revenues have been decreasing relative to non-oil and gas revenues since 2001. Second, fuel subsides will reach record levels in 2008 while electricity subsidies have been increasing even faster. Third, the paper finds that most of the fuel subsidy that directly benefits households goes to the richest 20 percent. Fourth, even at levels above US$100 per barrel, the government receives more revenues from oil and gas than it spends on energy subsidies. However, due to significant revenue-sharing with sub-national governments, high oil prices are net-negative for the central government, while they create fiscal windfalls for many regions. Finally, the oil sector's positive impact on Indonesia's public finances declines as oil prices rise, because subsidies and other expenditures outgrow oil and gas revenues.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 4718.
Date of creation: 01 Sep 2008
Date of revision:
Energy Production and Transportation; Oil Refining&Gas Industry; Markets and Market Access; Debt Markets; Energy and Environment;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-29 (All new papers)
- NEP-DEV-2008-09-29 (Development)
- NEP-ENE-2008-09-29 (Energy Economics)
- NEP-SEA-2008-09-29 (South East Asia)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert Gillingham & David Locke Newhouse & David Coady & Kangni Kpodar & Moataz El-Said & Paulo A. Medas, 2006. "The Magnitude and Distribution of Fuel Subsidies," IMF Working Papers 06/247, International Monetary Fund.
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