IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/4718.html
   My bibliography  Save this paper

Black hole or black gold ? the impact of oil and gas prices on Indonesia's public finances

Author

Listed:
  • Agustina, Cut Dian R.D.
  • del Granado, Javier Arze
  • Bulman, Tim
  • Fengler, Wolfgang
  • Ikhsan, Mohamad

Abstract

Indonesia's oil revenues and fuel subsidies dominate the nation's economic policy agenda. This paper estimates the impact of higher international oil prices on the Indonesian government's fiscal position in 2008 and beyond. It analyzes the interactions between government revenues and expenditures, as well as international oil prices, energy subsidies, and inter-governmental transfers. Looking at the impact of oil prices over US$100 per barrel, the paper presents five main findings. First, despite record high oil prices, the government's oil and gas revenues have been decreasing relative to non-oil and gas revenues since 2001. Second, fuel subsides will reach record levels in 2008 while electricity subsidies have been increasing even faster. Third, the paper finds that most of the fuel subsidy that directly benefits households goes to the richest 20 percent. Fourth, even at levels above US$100 per barrel, the government receives more revenues from oil and gas than it spends on energy subsidies. However, due to significant revenue-sharing with sub-national governments, high oil prices are net-negative for the central government, while they create fiscal windfalls for many regions. Finally, the oil sector's positive impact on Indonesia's public finances declines as oil prices rise, because subsidies and other expenditures outgrow oil and gas revenues.

Suggested Citation

  • Agustina, Cut Dian R.D. & del Granado, Javier Arze & Bulman, Tim & Fengler, Wolfgang & Ikhsan, Mohamad, 2008. "Black hole or black gold ? the impact of oil and gas prices on Indonesia's public finances," Policy Research Working Paper Series 4718, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4718
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2008/09/15/000158349_20080915111953/Rendered/PDF/WPS4718.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mr. Robert Gillingham & David Locke Newhouse & Mr. David Coady & Mr. Kangni R Kpodar & Moataz El-Said & Mr. Paulo A Medas, 2006. "The Magnitude and Distribution of Fuel Subsidies: Evidence from Bolivia, Ghana, Jordan, Mali, and Sri Lanka," IMF Working Papers 2006/247, International Monetary Fund.
    2. Mr. David Coady & Mr. Taimur Baig & Mr. Joseph Ntamatungiro & Mr. Amine Mati, 2007. "Domestic Petroleum Product Prices and Subsidies: Recent Developments and Reform Strategies," IMF Working Papers 2007/071, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dartanto, Teguh, 2013. "Why is growth less inclusive in Indonesia?," MPRA Paper 65136, University Library of Munich, Germany, revised 2014.
    2. International Monetary Fund, 2010. "Indonesia: Selected Issues," IMF Staff Country Reports 2010/285, International Monetary Fund.
    3. Djoni Hartono & Ahmad Komarulzaman & Tony Irawan & Anda Nugroho, 2020. "Phasing out Energy Subsidies to Improve Energy Mix: A Dead End," Energies, MDPI, vol. 13(9), pages 1-15, May.
    4. B.F. Sihombing & Edy Lisdiyono, 2018. "Governance and the Role of Legal Aspects in the Fuel Pricing in Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 8(3), pages 168-176.
    5. World Bank, 2012. "History and Evolution of Social Assistance in Indonesia," World Bank Publications - Reports 12259, The World Bank Group.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. International Monetary Fund, 2013. "Morocco: Selected Issues," IMF Staff Country Reports 2013/110, International Monetary Fund.
    2. Plante, Michael, 2014. "The long-run macroeconomic impacts of fuel subsidies," Journal of Development Economics, Elsevier, vol. 107(C), pages 129-143.
    3. Gerhard Glomm & Juergen Jung, 2015. "A Macroeconomic Analysis Of Energy Subsidies In A Small Open Economy," Economic Inquiry, Western Economic Association International, vol. 53(4), pages 1783-1806, October.
    4. Daniel Artana, Marcelo Catena y Fernando Navajas & Fernando Navajas & Marcelo Catena, 2007. "El Shock de los Precios del Petróleo en América Central: Implicancias Fiscales y Energéticas," Working Papers 94, FIEL.
    5. Segal, Paul, 2012. "How to spend it: Resource wealth and the distribution of resource rents," Energy Policy, Elsevier, vol. 51(C), pages 340-348.
    6. Margaret Grosh & Carlo del Ninno & Emil Tesliuc & Azedine Ouerghi, 2008. "For Protection and Promotion : The Design and Implementation of Effective Safety Nets," World Bank Publications - Books, The World Bank Group, number 6582.
    7. Frederick van der Ploeg & Anthony J. Venables, 2012. "Natural Resource Wealth: The Challenge of Managing a Windfall," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 315-337, July.
    8. John Baffes & M. Ayhan Kose & Franziska Ohnsorge & Marc Stocker, 2015. "The great plunge in oil prices: causes, consequences, and policy responses," CAMA Working Papers 2015-23, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    9. Plante, Michael, 2011. "The long-run macroeconomic impacts of fuel subsidies in an oil-importing developing country," MPRA Paper 33823, University Library of Munich, Germany.
    10. Jha, Shikha & Quising, Pilipinas & Camingue, Shiela, 2009. "Macroeconomic Uncertainties, Oil Subsidies, and Fiscal Sustainability in Asia," ADB Economics Working Paper Series 150, Asian Development Bank.
    11. Plante, Michael, 2014. "The long-run macroeconomic impacts of fuel subsidies," Journal of Development Economics, Elsevier, vol. 107(C), pages 129-143.
    12. Lopez, Ramon E. & Islam, Asif M., 2008. "When Government Spending Serves the Elites: Consequences for Economic Growth in a Context of Market Imperfections," Working Papers 45875, University of Maryland, Department of Agricultural and Resource Economics.
    13. Mills, Evan, 2017. "Global Kerosene Subsidies: An Obstacle to Energy Efficiency and Development," World Development, Elsevier, vol. 99(C), pages 463-480.
    14. Paolo Verme & Abdelkrim Araar, 2017. "The Quest for Subsidies Reforms in the Middle East and North Africa Region," World Bank Publications - Books, The World Bank Group, number 25783.
    15. Jorge Alberto Rosas Flores & David Morillón Gálvez & Rodolfo Silva, 2024. "Effects of Removing Energy Subsidies and Implementing Carbon Taxes on Urban, Rural and Gender Welfare: Evidence from Mexico," Energies, MDPI, vol. 17(9), pages 1-18, May.
    16. Firew B Woldeyes, 2013. "Long-Run Effects of Resource Rents in Developing Countries: The role of public investment management," OxCarre Working Papers 105, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    17. Mr. David Coady & Mr. Taimur Baig & Mr. Joseph Ntamatungiro & Mr. Amine Mati, 2007. "Domestic Petroleum Product Prices and Subsidies: Recent Developments and Reform Strategies," IMF Working Papers 2007/071, International Monetary Fund.
    18. Akpalu, Wisdom & Dasmani, Isaac & Aglobitse, Peter B., 2011. "Demand for cooking fuels in a developing country: To what extent do taste and preferences matter?," Energy Policy, Elsevier, vol. 39(10), pages 6525-6531, October.
    19. World Bank, 2011. "Petroleum Product Markets in Sub-Saharan Africa : Comparative Efficiency Analysis of 12 Countries," World Bank Publications - Reports 2743, The World Bank Group.
    20. Nora Lustig & Jon Jellema & Valentina Martinez Pabon, 2023. "Are Budget Neutral Income Floors Fiscally Viable in Sub-Saharan Africa?," Journal of African Economies, Centre for the Study of African Economies, vol. 32(Supplemen), pages 202-227.

    More about this item

    Keywords

    Energy Production and Transportation; Oil Refining&Gas Industry; Markets and Market Access; Debt Markets; Energy and Environment;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:4718. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.