Expanding fuel subsidies not good for Thailand

According to estimates based on the expected global increases in energy prices, Thailand’s blanket energy price subsidies will cost 129 billion baht (US$4.2billion), which is 5% of the government’s fiscal budget. This could go up to 10% by 2020 if current practices continue. For the fiscal year which ended last September 30, diesel fuel subsidies reached 68 billion baht (US$2.2 billion), out of a 2 trillion baht fiscal budget. “The main beneficiaries of the government’s blanket subsidies are not low-income earners, who are supposed to be the main target group,” said Chodechai Suwanaporn, executive vice-president for energy economic policy. Only 19% of those who benefit from diesel subsidies are low-income earners. Chodechai said that should the government decide to continue the subsidies, the amount could reach 204 billion baht (US$6.7 billion) in 2015, and 367 billion baht (US$12 billion) in 2020. An economist from Thammasat University, Praipol Koomsup, called on the government to implement a managed-float system for energy prices, one that is similar to exchange-rate management. Praipol, who is also a member of the central bank’s Monetary Policy Committee, said if this system is used, local prices would be dictated by global price movements. (September 8, 2011)