Singapore: Subsidies pose an increasing fiscal burden that emerging Asian economies should move away from, former International Monetary Fund (IMF) chief Rodrigo de Rato said on Tuesday.
Challenge ahead: Rodrigo de Rato, former managing director of IMF, says it is not feasible to keep prices artificially low.
Subsidies only resulted in market distortion, and their beneficiaries included wealthier segments of society least in need of assistance, de Rato said. He added that doing away with subsidies would not be easy because of social and political pressures, but maintained that keeping prices artificially low was not feasible.
“I know that poses a big challenge in societies with a huge amount of people that live with very low incomes but the experience in the world is that subsidies are not the response to social policies,” said de Rato. He added that subsidies “benefit everybody, rich and poor, and I think that emerging economies have to understand, and I think they do, that subsidies have to be substituted by other, more efficient, social policies.”
China on Friday became the latest Asian nation to curb energy subsidies by increasing retail petrol and diesel prices as much as 18%, moving to close the gap between state-set domestic prices and soaring world oil costs.
Faced with ballooning subsidy bills, Malaysia recently raised fuel prices by 41% and Indonesia by around 29%, leading thousands to protest in both countries. Taiwan and India have also raised energy costs. Some countries such as Indonesia also subsidize rice for the poor. Its price and that of other staple grains has soared too.