Energy Subsidies in Latin America and the Caribbean: Stocktaking and Policy Challenges
IMF Working Papers, February 12, 2015
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- Energy Subsidies in Latin America and the Caribbean: Stocktaking and Policy Challenges
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Bibliographic details
- Authors: Gabriel Di Bella, Lawrence Norton, Joseph Ntamatungiro, Sumiko Ogawa, Issouf Samaké, Marika Santoro
- Published: February 12, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484365366.001
Summary / Key findings
- The oil price decline creates an opportunity to dismantle energy subsidies, which escalated with high oil prices.
- Energy subsidies in Latin America and the Caribbean were about 1.8 percent of GDP in 2011–13 (approximately evenly split between fuel and electricity).
- Energy subsidies were about 3.8 percent of GDP including negative externalities.
- Countries with poorer institutions subsidize more.
- Energy-rich countries subsidize fuel more.
- Low-income countries are more likely to subsidize electricity.
- Central America and the Caribbean are more likely to subsidize electricity.
- Energy subsidies impose fiscal costs and hurt state-owned enterprises (SOEs), competitiveness, and distribution.
Distribution and institutional patterns
- Geographic and income patterns:
- Energy-rich countries: higher fuel subsidies.
- Low-income countries: greater likelihood of electricity subsidies.
- Central America and the Caribbean: greater likelihood of electricity subsidies.
- Institutional quality:
- Countries with poorer institutions tend to provide larger energy subsidies.
Fiscal and economic impacts
- Fiscal costs:
- Energy subsidies impose direct fiscal costs on governments.
- They also hurt SOEs through fiscal strains on state enterprises.
- Broader economic effects:
- Energy subsidies negatively affect competitiveness.
- Subsidies have distributional consequences.
Reform experience and policy implications
- The oil price decline is identified as an opportunity to dismantle or reform energy subsidies that had risen with prior high oil prices.
- The paper overviews country experience with subsidy reform and draws lessons (overview described; specific country-by-country reform measures and lessons are presented in the paper).