A fuel subsidy puts pressure on the budget and external account. The Government of Indonesia still administers fuels prices, which lag far behind international price increases and cause unsustainably ...
high fiscal spending (box figure). In 2012, the government spent $22 billion on fuel subsides—at 2.6% of GDP, they were 0.6 percentage points higher than the government’s infrastructure spending. As Indonesia now imports fuel, the policy weighs on the country’s external account. Although reducing the fuel subsidy will remain politically difficult, domestic debate is moving in the right direction. Cutting the fuel subsidy increases prices and is thus politically very unpopular. However, the public recognizes that the general fuel subsidy disproportionately benefits the rich and middle class, disregarding any question of need. A household survey found the richest 10% of households consuming 40% of all subsidized gasoline (World Bank 2011). In addition, the policy encourages overconsumption. As reallocating fiscal resources to infrastructure, health, and education would spur growth and make it more inclusive, the government and parliament agreed in the 2013 budget to allow higher fuel prices.
-----Source : IEA - Energy subsidies
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