OVER the past year energy subsidies have become a target for politicians on austerity drives. In June Indonesia increased petrol prices by 44% to cut its annual subsidy bill of $20 billion. More recently Malaysia followed suit, in the hope of filling a budget hole which had reached 4.5% of GDP. It slashed petrol subsidies, and on January 1st household energy bills went up by 15%. Countries such as Egypt and India are considering similar measures to reduce their growing budget deficits; Egypt’s is now at 14% of GDP.
It is the growing cost of subsidies, rather than worries about climate change, that explains the renewed interest in cutting them, says Fatih Birol at the International Energy Agency (IEA). They have become unaffordable as global oil prices have more than doubled between 2009 and 2012. In Jordan, for instance, their cost increased more than tenfold in just two years. And in many other countries they now account for more than 5% of GDP.