THE SUBSIDIZATION OF FUEL IN DEVELOPING COUNTRIES.

[Bitco55]

Do you think fuel should be subsidized in developing countries?

Fuel is the lifeblood of any economy. It aids lots of things from power supply, transports, production activities, etc,. Countries where over 40% of population live below the poverty line, removal of fuel subsidy can be very detrimental to the daily cost of living of the people, making it extra difficult for people to survive, talk more of saving money and building wealth. Transport prices increased, so does food price and basic good & services. Some say that subsidy is not just an economic tool but a form of social protection. The removal of subsidizes make wages lose their values easily and quickly, and also, businesses tend to struggle with higher cost of production. It can therefore be seen as the government way to redistribute oil wealth back to the citizens.

But on the other hand, it is also seen as a ' black hole' for public finance. Money paid as subsidies can be used to build schools, hospitals, roads, and other infrastructures that'll aid economic development. It encourages smuggling, where fuel is taken across borders and sold at higher prices, enriching thieves and criminals instead of the citizens. Critics say that money spent on subsidy can be channeled into targeted programs or long-term development.

So, do you still think subsidization of fuel is necessary, or is the overall development of a country more important?

[retaur]

I think it depends where the "fuel" comes from.

If it's subsidised because it's a renewable form of energy then it's a lot better because the solar panels and turbines are not burning equities and the subsidy. Oil and coal may always be needed in some way (at least biofuel). But I don't think the default should be natural gas because it's not a reliable supply and fluctuates in price quite a bit (and even though the same is arguable about renewables - it's also easier to adjust to having a lower supply than it is to adjust to having none indefinitely).

[Cryptohygenic]

So, do you still think subsidization of fuel is necessary, or is the overall development of a country more important?

If we go buy how it is being explained of how subsidy and non subsidy can influence or Impacts the society being, there should be no need for subsidy removal because it will stroke inflation where the fiats loses values while the lower class and the less privileges are left on panic facing more survival hardships out of high cost of living erupting if the subsidy is removed. The nation have other resources that  generate funds for the governments to facilitate on all that public infrastructures. So it does not mean cost of petrol must be high at the cause of subsidy removal before the citizens can obtain the welfares.

[slapper]

You are asking whether we should choose between not letting people starve today, or building hospitals for tomorrow like this is some great philosophical choice rather than a policy choice because it failed. Fuel subsidies are a confession. They are governments who are saying, "we've created an economy so fragile that if the price of diesel reaches its true values it collapses"

And to take them away, with no other choice? That is simply choosing that the poor should pay for that failure, rather than the state. Venezuela was subsidizing fuel to death and bust. Indonesia reduced subsidies and observed riots. Both were right. Both were wrong. The problem is that developing economies are caught in a resource curse where the only wealth is extraction and extraction only benefits whoever has the key to the valve

You want the real answer? Subsidies are a time-buying mechanism. The question is what are you buying time FOR. If it is to create real economic diversity (manufacturing, services, human capital) then maybe. If it is simply a matter of buying time to allow elites to take the difference, you are paying for your own stagnation

[X-ray]

You are asking whether we should choose between not letting people starve today, or building hospitals for tomorrow like this is some great philosophical choice rather than a policy choice because it failed. Fuel subsidies are a confession. They are governments who are saying, "we've created an economy so fragile that if the price of diesel reaches its true values it collapses"

Couldn't agree more this is so true, the subsidies is just tip of an iceberg, there's a more deeper problem that causes subsidies to be essential to the people and that could be corruption or government failure at managing economy.

When even an economy could collapse just because fuel aren't subsidized anymore, you know the economy is not in a good shape.

Maybe just keep the subsidy while fixing the economy, most of the time it's because the messed up bureaucracy or straight up unpunished corruption.

[abhiseshakana]

You are asking whether we should choose between not letting people starve today, or building hospitals for tomorrow like this is some great philosophical choice rather than a policy choice because it failed. Fuel subsidies are a confession. They are governments who are saying, "we've created an economy so fragile that if the price of diesel reaches its true values it collapses"

And to take them away, with no other choice? That is simply choosing that the poor should pay for that failure, rather than the state. Venezuela was subsidizing fuel to death and bust. Indonesia reduced subsidies and observed riots. Both were right. Both were wrong. The problem is that developing economies are caught in a resource curse where the only wealth is extraction and extraction only benefits whoever has the key to the valve

You want the real answer? Subsidies are a time-buying mechanism. The question is what are you buying time FOR. If it is to create real economic diversity (manufacturing, services, human capital) then maybe. If it is simply a matter of buying time to allow elites to take the difference, you are paying for your own stagnation

I'll try to analyze the example of subsidies in my country, Indonesia (specifically energy: fuel, electricity, 3-kg LPG). Subsidies function as a buffer for household consumption and a short-term social/inflation stabilizer to maintain domestic purchasing power and reduce political pressure on vulnerable groups. Subsidies lower the price of energy goods, so that real household consumption rises or does not fall when international prices rise. This has a direct impact on consumer spending and aggregate demand. If subsidies encourage consumption among poor households, the multiplier can be relatively high (due to the high propensity to consume), thus stimulating short-term growth.

It must be acknowledged that large subsidies impose a significant fiscal burden that reduces the space for productive spending (infrastructure, education, health), thereby suppressing medium- to long-term growth potential (a crowding-out effect). If left unchecked, fiscal risks increase and policy flexibility decreases. The size of the subsidy depends on global oil prices and the rupiah exchange rate. Fiscal pressure when world prices rise can trigger the withdrawal of reserves or the use of fiscal buffers. Recent reports have emerged of the use of reserves/fiscal engineering to fund major programs, reducing the government's room for maneuver.

The technical problem in Indonesia is that many energy subsidies (non-targeted fuel, imperfect distribution of 3kg LPG) are regressive, with wealthy households receiving a large proportion of the total subsidy. This reduces the effectiveness of subsidies as a poverty alleviation tool. Distribution leakage (sales to non-targeted markets), inefficiency of distribution companies, and fraudulent practices (e.g., QR codes/registrations triggering a shift to non-subsidized markets) are implementation issues. Cases of fuel shortages at private retailers (SHELL) and quota arrangements highlight coordination issues. The quality of recipient data (Integrated Data from the Ministry of Social Affairs, National Identity Number) determines targeting accuracy, and improvements in digital delivery (e-forms, QR codes, electronic cash transfers) can minimize leakage.

Therefore, concrete steps that the Indonesian government has, is currently, and will take include targeted temporary protection: diverting some subsidies directly to cash social assistance for vulnerable groups, which is faster and maintains consumption effects. (High priority, short term). The government should announce a subsidy reform roadmap (calendar of price increases/adjustments) and a clear compensation package to mitigate political uncertainty. (High priority). Improve targeting and digital delivery (Integrated Data from the Ministry of Social Affairs + electronic transfers) to minimize leakage. (Medium priority). The Minister of Finance is currently pushing for budget reallocation to capital expenditure and the energy transition—encouraging productive and green investment. (Medium-long priority). Establish a fiscal stabilization mechanism (reserve funds/strategic reserves) to avoid the use of emergency reserves, which erode flexibility. (Medium priority)

In my opinion, the appropriate policy chain is to directly protect the vulnerable, reduce regressive subsidies, and reallocate the budget to productive investment and the energy transition. Gradual reforms, accompanied by targeted compensation and strong public communication, are likely to provide the best combination for maintaining current consumption without sacrificing future growth

[crwth]

This could be a hit or miss type of thing IMO. The environmental impact of this, particularly in terms of fuel emissions, doesn't align with the Sustainable Development Goals, and it would be challenging to effectively push for subsidization.

Are there countries that have applied these subsidy reforms, and were they successful? Case studies would be the best way to answer this.

[₿itcoin]

Do you think fuel should be subsidized in developing countries?

So, do you still think subsidization of fuel is necessary, or is the overall development of a country more important?

you already gave the ans.. Fuel subsidies may be necessary for poor countries in the short term, because they protect people from sudden price increases. But they are not sustainable in the long term because governments have to pay huge sums of money each year, which actually takes away opportunities to invest in health, education, roads, or agriculture. Moreover, those who use more fuel, like- the relatively wealthy, get most of the benefits, much more than the poor. This creates market distortions, increases waste, discourages investment in energy efficiency or renewable energy & yeah it increases smuggling across borders if prices are high in neighboring countries

So the balanced solution is to gradually reduce subsidies but maintain specific support for the poor, such as cash transfers or targeted subsidies for agriculture and transport, while at the same time investing heavily in infrastructure, renewable energy &  energy efficiency. This will both alleviate the suffering now and put the economy on a solid footing for the future.

[Rruchi man]

So, do you still think subsidization of fuel is necessary, or is the overall development of a country more important?

The topic of fuel subsidy was an issue in my country, Nigeria, for a while. The government claimed to have been subsidizing the cost of petrol for us, the citizens, for a long time, and it came to a period where this subsidy was removed with claims that they could no longer handle it. The decision to remove this subsidy was not to put citizens in hardship but to eliminate the large deficit it brought to the national budget and make available more finance for investment into other sectors that could potentially improve the state of the economy.

If the economy of a country is improved, there will be no need for the government to subsidize the rate of petroleum products for citizens because they will be able to afford it, but in my country, Nigeria, the challenge is even after the subsidy was abolished, there has been no major improvement in the economy because the money that they paid for the subsidy is probably now being embezzled by corrupt public officials, which should not be so. Subsidization of petroleum products will not be necessary if a country has a functioning economy that supports the growth of its citizens.