Energy Subsidies Reform in Jordan : Welfare Implications of Different Scenarios

Report, Research, Preprint English OPEN
Aziz, Atamanov ; Jellema, Jon ; Serajuddin, Umar (2015)
  • Publisher: World Bank, Washington, DC
  • Subject: GOVERNMENT BUDGET | SUBSIDY | POWER STATIONS | PETROLEUM PRODUCTS | HEAVY OIL | WELFARE | SUPPLY | APPROACH | OUTPUT | BALANCE | PRICE | OPTIONS | HOUSEHOLD EXPENDITURES | SAVINGS | PRODUCER PRICES | TRENDS | OIL PRICES | ENERGY | GENERATION | INCOMES | GASOLINE PRICE | FUEL OIL | PRODUCER PRICE | ELECTRICITY TARIFF | GASOLINE CONSUMPTION | FISCAL CONSOLIDATION | DEMAND | INCOME GROUP | ELECTRIC POWER | GDP | PRIVATIZATION | EXPENDITURES | PRICE OF GASOLINE | Transport Economics Policy&Planning,Energy Production and Transportation,Economic Theory&Research,Emerging Markets,Markets and Market Access | INTERNATIONAL MARKET | PRICE CHANGES | DIESEL | COMMODITY | PRODUCERS OF PETROLEUM | COMMODITIES | AVAILABILITY | DISTRIBUTION | SOCIAL PROTECTION | INFLATION | RETAIL | PRODUCTS | PETROLEUM GAS | SHARES | ELECTRICITY CONSUMPTION | DEVELOPMENT POLICY | CURRENCY | PRICE ADJUSTMENTS | SHARE | TARIFF | SOCIAL SAFETY NETS | POWER | GAS SUPPLY | FUEL SUBSIDIES | GROWTH RATES | PRODUCT | GOVERNMENT EXPENDITURES | PETROLEUM PRICES | SAFETY NETS | ELECTRICITY | ELECTRICITY PRICES | FINANCIAL RISKS | NATURAL GAS | SALE | FUTURE | SUBSIDIES | OIL PRODUCTS | FOOD PRICE | EXPENDITURE | ELECTRICITY SYSTEM | INPUTS | FUEL | POWER MIX | GOODS | DEMAND ELASTICITY | POWER COMPANY | COMMODITY PRICES | ELECTRICITY TARIFFS | GDP PER CAPITA | DATA AVAILABILITY | PETROLEUM | COMMUNICATION | CONSUMPTION LEVELS | SOLAR POWER | ELECTRICITY PRICE | PRICE ELASTICITY | MARKET PRICES | POLITICAL ECONOMY | ENERGY PRICES | FUELS | WATER | MARKET | ELECTRICITY GENERATION | HEAVY FUEL OIL | EXCHANGE | FOOD PRICES | DEBT | POWER PRODUCERS | INCOME | PRICE SUPPORT | KILOWATT-HOUR | ELASTICITY | GINI COEFFICIENT | INTERNATIONAL COOPERATION | GASOLINE | AGRICULTURE | OIL | INTEREST | GAS | PRODUCER PRICE INCREASE | CONSUMERS | FUEL PRODUCTS | PETROLEUM PRICE | PRICE INCREASE | PRICES | DISTRIBUTION OF ELECTRICITY | ENERGY PRODUCTS | COSTS SAVINGS | POLITICAL UNREST | PRICE INCREASES | PETROLEUM SECTOR | CONSUMPTION | GASOLINE PRICES | PRICE SUBSIDIES | KEROSENE | RETAIL PRICE | SPREAD | ADVERSE IMPACT | FUEL PRICES | PRICE CHANGE | PRICING | WORLD DEVELOPMENT INDICATORS

As the Arab Spring unfolded and political unrest spread across the Arab world, Jordan faced an adverse economy as well. Fundamental to the economic challenge was high and rising energy prices, already heavily subsidized for consumers. With the government intent on staving off emerging political unrest through a series of measures, buffering consumers from increased energy prices being a key action, fiscal costs mounted. By 2012, subsidies on petroleum products alone were about 2.8 percent of GDP and 8.8 percent of government expenditures. At the same time, political unrest disrupted the supply of natural gas from Egypt and Jordan abruptly had to switch to using imported oil products (heavy fuel oil and diesel) to produce electricity. Consequently, the cost of producing electricity increased several folds. As the increased cost was not passed on to the consumers, National Electric Power company (NEPCO), bore all the increases in fuel prices and accumulate debt as a result. At approximately 17 percent of government expenditures and 5.5 percent of GDP in 2011, this was twice the amount of the petroleum subsidies. The chapter is organized as follows. Section two traces the evolution of subsidies in Jordan in recent times. The distributional impacts of reform would depend on how important the subsidized items are to consumers in terms of their expenditures on those items. Section three discusses this question from the perspective of richer and poorer households. The distributional impacts of reform would of course not only depend on how much consumers spend on the subsidized items but also on the extent of price changes. Sections four and five simulate direct and indirect impacts of potential reform scenarios across the income distribution. From this discussion, in section six the chapter moves onto considering how reforms are weighed down by vexing political economy constraints. In MENA countries, universal subsidies have been in place as part of the government’s role in ensuring stability in the lives of the people and doing away with them is not straightforward.
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