South Asia Economic Focus- Spring 2015 Making the...
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South Asia Economic Focus- Spring 2015 Making the Most of Cheap Oil Selected insights from ongoing analysis Chief Economist Office, South Asia The World Bank
Transcript of South Asia Economic Focus- Spring 2015 Making the...
South Asia Economic Focus- Spring 2015
Making the Most of Cheap Oil
Selected insights from ongoing analysis
Chief Economist Office, South Asia
The World Bank
The growth impact of cheaper oil will vary widely
-0.8
-0.7
-0.6
-0.5
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
World High-income Developing oil exportingdeveloping
oil importingdeveloping
Percent change in real GDP compared with baseline, 2015
Source: World Bank, MacroFiscal Model
The growth impact of cheaper oil is bound to be positive for South Asia
These shares are the highest among all major developing regions
The elasticity of GDP to oil prices varies widely across South Asian countries
Source: World Bank staff calculations based on World Bank, IMF and National authorities data
0.00 0.05 0.10 0.15 0.20 0.25
Afghanistan (1)
Bangladesh (2)
Bhutan (3)
India
Maldives (4)
Nepal (5)
Pakistan (6)
Sri Lanka
Oil price elasticity of GDP
The speed of disinflation will be stronger in India
Source: World Bank staff calculations based on World Bank, IMF and National authorities data
0.00 0.05 0.10 0.15 0.20 0.25 0.30
Afghanistan (1)
Bangladesh (2)
Bhutan (3)
India
Maldives (4)
Nepal (5)
Pakistan (6)
Sri Lanka
Oil price elasticity of CPI
Developing countries are characterized by pervasive energy subsidies
Source: IMF
The removal of energy subsidies would allow reducing budget deficits
These deficits are the highest among all major developing regions
-15
-10
-5
0
5
10
15Diesel (Rs/liter)
Under-recoveries excise duty (unbranded) excise duty (branded)
India moved quickly to cut subsidies and introduce excise tax on diesel and petrol (1)
Source: India Petroleum Planning and Analysis Cell
India moved quickly to cut subsidies and introduce excise tax on diesel and petrol (2)
0
5
10
15
20Petro (Rs/liter)
Under-recovery Excise duty (ubranded) Excise duty (branded)
Source: India Petroleum Planning and Analysis Cell
No price reform in Bangladesh and Pakistan, but lower oil price made subsidies disappear
-1000
-800
-600
-400
-200
0
200
400
600
LPG Kerosene
Pakistan
2012 2015
Difference between international benchmark price and domestic price (US$/ton)
Source: Benchmark Prices are February 2015 Singapore FOB prices plus US$2/bbl freight charge and a 15% VAT.
Domestic prices refer to the latest prices published by the Bangladesh Petroleum Corporation and Pakistan State Oil.
-300
-200
-100
0
100
200
300
400
500
600
Kerosene Gas Diesel Fuel Oil
Bangladesh
2012 2015
There will also be impacts on foreign trade (1)
Source: World Bank staff calculations based on World Bank, IMF and National authorities data
-0.20 0.00 0.20 0.40 0.60 0.80
Afghanistan (1)
Bangladesh (2)
Bhutan (3)
India
Maldives (4)
Nepal (5)
Pakistan (6)
Sri Lanka
Oil price elasticity of Exports
There will also be impacts on foreign trade (2)
Source: World Bank staff calculations based on World Bank, IMF and National authorities data
0.00 0.20 0.40 0.60 0.80
Afghanistan (1)
Bangladesh (2)
Bhutan (3)
India
Maldives (4)
Nepal (5)
Pakistan (6)
Sri Lanka
Oil price elasticity of Imports
Oil price margins are volatile…
Source: IMF Commodity Price Outlook and Risk, March 11, 2015
… exposing firms and fiscal balances to uncertainty-.
10
.1.2
.3.4
1995q1 2000q1 2005q1 2010q1 2015q1Quarter
Gasoline/Crude (log) TOT (log)
Source: World Bank Staff calculations
But hedging is fraught with risk as well, limiting the options to manage risk
1.2 1.4 1.61.2
3.5
6
0
1
2
3
4
5
6
7
National National National
Bangladesh Pakistan India
Mean average spending on all fuels %
Bottom 40% Top 60%
• Bangladesh – no pass through of international prices, no direct or indirect effects expected • Pakistan – decline of fuel prices will have small sized effect on welfare• India – slight decrease of fuel prices will have small effect on welfare
Direct welfare effects of cheaper oil will be be limited and skewed towards richer households
Welfare also depends on remittances, which are mainly from oil exporting countries40
4550
5560
65
Rem
ittan
ces
from
Gul
f Cou
ntri
es (
in %
of t
otal
)
2004q1 2006q3 2009q1 2011q3 2014q1quarter
Importance of Remittances from Oil exporting Countries
Source: World Bank, IMF and National authorities data
Remittances can be expected to decline (and Pakistan is already affected)-6
0-4
0-2
0
020
40
2004q1 2006q3 2009q1 2011q3 2014q1quarter
Q/Q difference Remit Idx from Gulf Countries
Q/Q difference crude oil prices
Lower Oil prices affect remittances
Source: World Bank, IMF and National authorities data
