Tuesday, September 06, 2005

Fuel Subsidy

Poor countries face a dilemma with rising oil prices.

If the government keeps the domestic price low, they bear the cost of the subsidy. Their people can take advantage of the subsidised price and buy more and make a profit from re-selling the fuel.

If they adjust the price to reflect the world market price, the ordinary people cannot afford the higher price.

What should they do?
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4 comments:

Tan Kin Lian said...

I have a solution. It is not perfect, but perhaps workable under the circumstances.

Issue a fuel voucher to the poor family, and to the people who need to use fuel for their daily business, eg transport operators.

This entitles the holder to buy a limited quantity at a subsidised price.

September 07, 2005 9:37 AM
sharon tay said...

Rising oil prices has a direct effect on a country’s GDP. Poorer countries may not have enough foreign exchange reserves to buffer the rising oil prices. Hence, poorer countries may be more vulnerable to the effects of rising oil prices. Perhaps one way to overcome this is for these countries to increase the extent of their self-sufficiency in oil. But that takes time.

In the face of such a pressing situation, Mr. Tan’s suggestion that fuel vouchers should be provided to families who are in need of fuel for livelihood is realistic.

September 07, 2005 2:32 PM
Freddy said...

I agree that subidies should only be given for people who use the vehicle to make a living. For others who are unwilling to pay the high cost of fuel, they can always use the public transport. The government should not subsidise them.

September 07, 2005 4:46 PM
Mickell said...

Hi Mr Tan,

Have you noticed that Shell has been offering 10% discount on all its petrols, whereas all its competitors have only been offering a miserable 6%?

September 15, 2005 5:54 PM

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