Middle East and North Africa (MENA) countries in general are in favour of cutting the energy subsidies targeting redirection of the supports to the poor and pushing down their budget deficits, policy makers and experts said.
The observations came at a discussion on 'the Dilemma of Subsidy Reform and Equity in MENA', held at the King Hussein Bin Talal Convention Centre in the Dead Sea, Jordan Friday night with Ahmed Galal, finance minister of Egypt, in the chair.
The discussion was organised as part of the ongoing seventeenth World Congress of the International Economic Association (IEA) where around 600 participants are taking part from across the world.
Countries of the MENA and a number of developing states are not in a position to afford these huge subsidies. For many developing countries, energy subsidies are expensive; they eat up national budgets and benefits are going mostly to the richest citizens, according to the speakers.
Energy subsidies are measures that keep prices for consumers below market levels and reduce costs for consumers and producers. It may be direct cash transfers to producers, consumers, or related bodies, as well as indirect support mechanisms, such as tax exemptions and rebates, price controls, trade restrictions, and limits on market access.
There were different views on timeline of enforcement of the removal of subsidies in different countries, as observed in the discussion. In some countries short-term strategy has been opted whereas in some countries policy markers are in favour of relatively longer term strategies.
The speakers reminded the well-known arguments in favour of energy subsidies that include security of supply, economic benefits, employment and social benefits. There are also arguments that environmental improvement may also be facilitated by subsidies when used to reduce pollution and different emissions, and to fulfil international obligations.
Sherine EI-Shawarby, deputy finance minister of Egypt, said the decision on reduction of subsidy is very difficult and politically unpopular. "Thus strong political will is a must for enforcement of such a decision."
Paolo Verme, senior poverty specialist for North-Africa and Middle-East of the World Bank, suggested that no single formula is the best for all, rather each country should decide on its policy and strategy considering its internal requirements and conditions.
Djavad Salehi-Isfahani, professor of economics at Virginia Tech in the USA, explained the disappointed experience on the cash subsidies, offered to the poor in Iran by replacing energy subsidies.
Describing the recent initiatives, Ibrahim Seif, planning and international cooperation minister of Jordan, elaborated the Jordanian government's strategy to promote renewable energy in the country's energy-mix to ensure energy efficiency.
Talking to the FE, Shah Md. Ahsan Habib, professor and director of the Bangladesh Institute of Bank Management (BIBM), said: "In regard to the lesson from the discussion in the context of energy subsidy in Bangladesh, it is time to assess: who are the true beneficiaries of the energy subsidy in the country? Is it really pro-poor? If not, we need to initiate measures to reallocate the distribution of subsidy."
He also said the subsidy in the country is not un-expected; however, it must reach the target group. "And considering the growing need and environmental issues, more emphasis should be laid on renewable energy sector for ensuring long term sustainability in the energy sector of the country."
The Bangladesh government has proposed BDT 94 billion as subsidy to the power and energy sector for the next fiscal year (FY) 2014-15, which is 30 per cent less than that of the previous budget, according to the BIBM director.
"Considering the decrease in the amount, some may call this a progressive step. However, this may not be that straight forward. It is really encouraging that government has slowly started supporting the renewable energy sector," Dr. Habib noted.
He also said that the Bangladesh Bank (BB) has attained a remarkable landmark by introducing green banking to promote renewable energy sector in the country.
The central bank has introduced a refinance line for the commercial banks against their loans to environmentally beneficial projects including renewable energy generation, installation of Effluent Treatment Plants and new energy efficient technologies at a concessional interest rate.
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