Automatic Fuel Pricing Mechanisms with Price Smoothing : Design, Implementation, and Fiscal Implications

Author/Editor:

David Coady ; Javier Arze del Granado ; Luc Eyraud ; Anita Tuladhar

Publication Date:

January 24, 2013

Electronic Access:

Free Full Text (PDF file size is 611 KB).Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Technical Guidance Note should not be reported as representing the views of the IMF. The views expressed in this Note are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

Many developing and emerging countries do not fully pass-through increases in international fuel prices to domestic retail prices, with adverse consequences for fuel tax revenues and tax volatility. The adoption of an automatic fuel pricing mechanism can help to address this problem, and the incorporation of a price smoothing mechanism can ensure pass-through over the medium term but also avoid sharp increases (and decreases) in domestic prices. This technical note addresses the following issues: (i) the design of an automatic fuel pricing mechanism; (ii) the incorporation of domestic price smoothing and resulting tradeoffs; (iii) the transition from ad hoc pricing adjustments to an automatic mechanism; and (iv) policies to support this transition and the maintenance of an automatic mechanism. A standardized template for simulating and evaluating the implications of alternative pricing mechanisms for price and fiscal volatility is available on request.

Series:

Technical Notes and Manuals No.2012/03

English

Publication Date:

January 24, 2013

ISBN/ISSN:

9781475566949/2075-8669

Stock No:

TNMEA2012003

Price:

$10.00 (Academic Rate:$10.00)

Format:

Paper

Pages:

23

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