E

Energy S
Subsidy
b id Reform
R f
DEFINITION AND MEASUREMENT
OF SUBSIDIES

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of the IMF. The views expressed in this material are those of the course staff and do not necessarily represent those of the IMF or IMF policy.
I. Definition
Types

Di t
Direct
Spending

Subsidies

Price Tax
Control Subsidies
Types

Natural
Resource
Access

Quasi-Fiscal Cross-
Interventions
i Subsidy
b id
Other
types

Purchase Lending
Requirements
Types

Subsidies

Consumers Pr < Supply cost

Producers Pr > Supply cost

Consumer
Subsidies

Consumer subsidies include two components:

• A pre-tax subsidy

•A post-tax subsidy
Consumer
Subsidies

Pw : international price/cost-recovery price

Pr : actual retail price paid by consumers

t : tax subsidy
II. Measurement

• It is difficult to measure/assess the cost of subsidies

 Lack of information on price setting mechanism

 Data issues
 Lack of budget transparency

• Approaches:

Price gap approach

Price-gap
Pass-through indicator
1. Price-Gap
Approach
2. Pass-Through
Indicator

Pw : international price/cost-recovery price (supply cost)

Pr : actual retail price paid by consumers (including tax)

Interpretation
 -0.5
2.0

0.0
0.5
1.0
1.5
Syria
Comparison:

M
Morocco
MCD Countries

Turkm
menistan
Egypt
Algeria
Bahrain
B
Iraq
Oman
Saudii Arabia
Kuwait
Diesel pass

Libya
Azeerbaijan
Qatar
Tunisia
UAE
pass-through

Uzb
bekistan
Mauuritania
Kazaakhstan
Sudan
Kyrggyz Rep.
Mar 2009 - Dec 2011

Djibouti
D
Jordan
Iran
Pakistan
P
Yemen
through to domestic price

Armenia
A
Lebanon
Afgh
hanistan
Georgia
G
Taajikistan
Detection:
Change in Policy

Pass-through of gasoline prices since June 2009

1.8 1.8
1.6 1.6
14
1.4 14
1.4
1.2 1.2
1.0
1.0
08
0.8
0.8
0.6
0.6
0.4
04
0.4 0.2
0.2 0.0
0.0 -0.2
Sep 10

Dec 10

Mar 11
Jun 10

Jun 11

11-Dec
11-Sep

Sep 10

Dec 10

Mar 11

11-Dec
11-Sep
Jun 10

Jun 11
Limitations:
Volatility

Month-to-month
Month to month pass
pass-through
through of
diesel prices in US
5

-1
Limitations

• The pass
pass-through
through can be negative around an
inversion of the trend in international prices

• It is sensitive to the choice of start and end

dates

• It does not
o accou
account for
o initial
a pprice
ce levels
e es