Macroeconomic Uncertainties, Oil Subsidies, and Fiscal Sustainability in Asia
Global oil prices have subsided relative to the peak reached in mid-2008, but compared to historical levels they remain elevated and volatile as economic uncertainties continue to unfold. The likelihood of these prices rising again soon cannot be ruled out. High oil prices can adversely affect growth, employment, external accounts, and fiscal positions of governments. An overwhelming response across Asia as international oil prices spiked in 2008 was to shield domestic consumers more than before through oil subsidies, which are inequitable, economically inefficient, and environmentally unfriendly. These subsidies add directly to the fiscal deficit and public debt, but are generally hidden, making their measurement difficult. Additionally, in combination with lower growth rates, higher spending to rev up demand across Asia is also worsening the fiscal positions of governments. This paper computes the transmission of recent global oil price movements to domestic markets and estimates oil price subsidies in a diverse group of 32 Asian economies. Using data for 18 of these countries and applying a forward-looking methodology for debt dynamics, the paper then examines the potential impact of responses to macroeconomic shocks and a possible rise in oil prices on public debt and estimates the fiscal correction needed to sustain debt at a steady-state level. Based on the findings from the empirical analysis, the paper extracts some guiding principles for fiscal policy responses to the economic shocks depending on country-specific circumstances.
|Date of creation:||Mar 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Fax: (63-2) 636-2648
Web page: http://www.adb.org
More information through EDIRC
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.:
- Michael P. Keane & Eswar Prasad, 1995.
"The Employment and Wage Effects of Oil Price Changes: A Sectoral Analysis,"
IMF Working Papers
95/37, International Monetary Fund.
- Keane, Michael P & Prasad, Eswar S, 1996. "The Employment and Wage Effects of Oil Price Changes: A Sectoral Analysis," The Review of Economics and Statistics, MIT Press, vol. 78(3), pages 389-400, August.
- Burnside, C. & Eichenbaum, M. & Rebelo, S., 1998.
"Prospective Deficits and the Asian Currency Crisis,"
RCER Working Papers
458, University of Rochester - Center for Economic Research (RCER).
- Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 2001. "Prospective Deficits and the Asian Currency Crisis," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1155-1197, December.
- Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1998. "Prospective deficits and the Asian currency crisis," Working Paper Series WP-98-5, Federal Reserve Bank of Chicago.
- Burnside, Craig & Eichenbaum, Martin & Rebelo, Sérgio, 1998. "Prospective Deficits and the Asian Currency Crises," CEPR Discussion Papers 2015, C.E.P.R. Discussion Papers.
- Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1999. "Prospective deficits and the asian currency crisis," Policy Research Working Paper Series 2174, The World Bank.
- Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1998. "Prospective Deficits and the Asian Currency Crisis," NBER Working Papers 6758, National Bureau of Economic Research, Inc.
- Hamilton, James D., 2003.
"What is an oil shock?,"
Journal of Econometrics,
Elsevier, vol. 113(2), pages 363-398, April.
- Oya Celasun & Xavier Debrun & Jonathan David Ostry, 2006.
"Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries: A "Fan-Chart" Approach,"
IMF Working Papers
06/67, International Monetary Fund.
- Oya Celasun & Xavier Debrun & Jonathan D. Ostry, 2006. "Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries: A "Fan-Chart" Approach," IMF Staff Papers, Palgrave Macmillan, vol. 53(3), pages 3.
- Robert Gillingham & David Locke Newhouse & David Coady & Kangni Kpodar & Moataz El-Said & Paulo A. Medas, 2006. "The Magnitude and Distribution of Fuel Subsidies: Evidence from Bolivia, Ghana, Jordan, Mali, and Sri Lanka," IMF Working Papers 06/247, International Monetary Fund.
- Nina Budina & Sweder van Wijnbergen, 2008. "Quantitative Approaches to Fiscal Sustainability Analysis: A Case Study of Turkey since the Crisis of 2001," World Bank Economic Review, World Bank Group, vol. 23(1), pages 119-140, November.
- Philippe D Karam & Doug Hostland, 2005.
"Assessing Debt Sustainability in Emerging Market Economies Using Stochastic Simulation Methods,"
IMF Working Papers
05/226, International Monetary Fund.
- Hostland, Doug & Karam, Philippe, 2006. "Assessing debt sustainability in emerging market economies using stochastic simulation methods," Policy Research Working Paper Series 3821, The World Bank.
- David K. Backus & Mario J. Crucini, 1998.
"Oil Prices and the Terms of Trade,"
NBER Working Papers
6697, National Bureau of Economic Research, Inc.
- Hana Polackova Brixi & Allen Schick, 2002. "Government at Risk : Contingent Liabilities and Fiscal Risk," World Bank Publications, The World Bank, number 15233.
- Lutz Kilian & Alessandro Rebucci & Nikola Spatafora, 2007.
"Oil Shocks and External Balances,"
562, Research Seminar in International Economics, University of Michigan.
- Davis, Steven J. & Haltiwanger, John, 2001.
"Sectoral job creation and destruction responses to oil price changes,"
Journal of Monetary Economics,
Elsevier, vol. 48(3), pages 465-512, December.
- Steven J. Davis & John Haltiwanger, 1999. "Sectoral Job Creation and Destruction Responses to Oil Price Changes," NBER Working Papers 7095, National Bureau of Economic Research, Inc.
- Gian-Maria Milesi-Ferretti, 2000.
"Good, Bad or Ugly?on the Effects of Fiscal Rules with Creative Accounting,"
IMF Working Papers
00/172, International Monetary Fund.
- Milesi-Ferretti, Gian Maria, 2004. "Good, bad or ugly? On the effects of fiscal rules with creative accounting," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 377-394, January.
- Milesi-Ferretti, Gian Maria, 2001. "Good, Bad or Ugly? On the Effects of Fiscal Rules with Creative Accounting," CEPR Discussion Papers 2663, C.E.P.R. Discussion Papers.
- David Coady & Taimur Baig & Joseph Ntamatungiro & Amine Mati, 2007. "Domestic Petroleum Product Prices and Subsidies: Recent Developments and Reform Strategies," IMF Working Papers 07/71, International Monetary Fund.
When requesting a correction, please mention this item's handle: RePEc:ris:adbewp:0150. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maria Susan M. Torres)
If references are entirely missing, you can add them using this form.