ADB warns Asian economies against broad fuel subsidies, tax cuts amid oil price risks

The Asian Development Bank on Wednesday warned Asian economies against implementing broad fuel subsidies and cutting excise duties, noting that such measures could strain public finances. It cautioned that with crude oil prices likely to stay elevated for an extended period, preserving fiscal space will be important for handling future uncertainties. The multilateral lender also made a case for creating a ‘Hormuz Safe Passage framework’ on the lines of UNited Nations Black Sea Grain initiative.

“Global crude oil prices are expected to remain higher for longer….You need to conserve fiscal space for any future contingencies, “ ADB chief economist Albert Park said, in a presentation on impact of Middle East conflict on Asian economies.

India on March 27 slashed excise duties on petrol and diesel to protect consumers and curb a potential spike in inflation, while imposing windfall taxes on aviation fuel and diesel exports, amid volatile global oil markets due to ‌the West Asia conflict.


He noted that price controls blunted price signals, and that tax cuts are on oil are regressive as high income households consume more energy.

Park instead suggested targeted cash transfers to protect poor and vulnerable sections.

He advocated diversification of supply and acceleration shift to green energy.

The ADB has also cautioned against imposing export controls on oil, gas, fertiliser and grains.

Monetary policy
Park said central banks need to exercise caution as this is a supply shock, and not demand. “Monitor inflation expectations and second round effects before tightening. They should avoid choking growth unnecessarily,” Park said.