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Public subsidies of petroleum products, whether in the form of corporate tax breaks or consumer aid, will account for about 1.0 percent of global economic output this year, an IMF report said Thursday.
The report by six economists at the International Monetary Fund highlighted a sharp rise in global consumer subsidies for petroleum products from 2003, when they totaled nearly 60 billion dollars.
This year the subsidies are projected to reach almost 250 billion dollars and, including subsidies through taxes, would hit 740 billion dollars, "or 1.0 percent of global GDP," the report said.
The staff report, "Petroleum Product Subsidies: Costly, Inequitable, and Rising," argues that "it is necessary to reform the policy framework for setting petroleum product prices in order to reduce the fiscal burden of these subsidies and to address climate change."
The IMF economists linked the spectacular rise in subsidies to a rebound in international oil prices.
The IMF projects that crude prices would increase by almost one third between mid-2009 and the end of 2010.
"Halving tax-inclusive subsidies could reduce projected fiscal deficits by one-sixth in subsidizing countries and could reduce greenhouse emissions by around 15 percent over the long run," the report said.
"Containing subsidies could have substantial environmental benefits in the form of reducing petroleum consumption and associated greenhouse gas emission."
The authors argued that subsidies originally aimed at helping the poor had failed: the benefits of 80 percent of total gasoline subsidies go to the richest 40 percent of households.
They called for subsidy reform strategies that include measures to "mitigate the impact of higher prices on the poorest groups."
