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Impact of Oil Price Rise on the Poor In Asia

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... stable GDP growth mainly in Malaysia and Thailand. High trade deficit in ... Malaysia is the ... through household surveys, key informant interviews, ... – PowerPoint PPT presentation

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Title: Impact of Oil Price Rise on the Poor In Asia


1

Impact of Oil Price Rise on the Poor In Asia
the Pacific Some Early Findings Regional
Energy Programme for Poverty Reduction (REP-PoR)
Nandita Mongia Ph .d United Nations Development
Programme Regional Centre in Bangkok
2
REP-PoR Thematic Areas
  • Thematic areas of priority as envisaged under
    REP-PoR
  • Improving access to energy services to the poor
    and un-served
  • Promoting efficient use of energy focusing on
    micro, small and medium enterprise (MSME) and
  • Increasing access to financing for sustainable
    energy micro credit/finance, mechanisms such as
    emerging Carbon Finance for small scale projects
  • 15 Country studies, their synthesis 3 Policy
    Studies to provide insights into regional
    sub-regional forces in play help design
    responses to enhance energy access

Regional Centre in Bangkok
3


HDR 2007
CSD 15 2007
RIM 2007
Knowledge Management
Nat. Dialogue
Advocacy
Media advocacy
2007
Energy for the Poor Report
Action Project (2006/2007)
Action Project (2006/2007)
Action Project (2006/2007)
Policy Advocacy

Reg. dialogue
2006
Country Energy - Poverty Programming
Synthesis Report
AP Gender Report
Task Force Reports
CDM/ Carbon Financing Strategy
Capacity Development

Nat. dialogue
Impact of Oil Price (2005-2006)
15 Country Gap Analysis of energy access
2005
Cross-Border Energy Trade (2005-2006)
Private Financing (2005-2006)
REP-PoR Work Programme
4
Over view of Three Policy Studies
  • All three Policy Studies are undertaken to
    reflect impacts at the Global , Regional
    National level
  • National level micro impact analysis 14 country
    case studies are currently on going /Fast Track
  • -- Oil Price Study India, China, Lao PDR ,
    Indonesia
  • -- Cross Border Energy Trade Indonesia ,
    China, Timor Leste , Lao PDR
  • -- Private Financing Bangladesh , Cambodia,
    Indonesia Nepal , Philippines, Solomon Islands

Regional Centre in Bangkok
5
Oil Price Study Relevance for REP - PoR
  • To Understand

What is driving the current trend in oil
prices? What are the potential future impacts of
continuing uptrend in oil prices? Key Findings
of Regional National Assessment, National
common lessons Key recommendations
/interventions for upstream policy dialogue, down
stream implementation support Regionality of
the collective responses need identification ,
high lighted planned interventions
Regional Centre in Bangkok
6
Questions intended to be answered by the Oil
Price Study
  • the impacts of rising oil prices on petroleum
    product electricity prices macroeconomic
    indices agriculture, transport, industry and
    physical infrastructure social sectors,
    particularly health and education and various
    components of MDGs?
  • extent currency regimes and fluctuations
    influenced oil price trends?
  • have rising oil prices supported or slowed energy
    market liberalization and energy subsidy reforms?
  • have rising oil prices affected the markets for
    energy efficiency, renewable energy and clean
    energy options? How and to what extent?

Regional Centre in Bangkok
7
Questions intended to be answered by the Oil
Price Study
  • ways and extent the poors access to modern
    fuels and electricity been affected by rising oil
    prices?
  • significant shifts in the poors energy supply
    and consumption patterns?
  • the impact of rising oil prices on the poors
    incomes, living costs and living conditions, and
    access to health and education?
  • policies and mechanisms are being employed by
    governments to cope with oil price uncertainties?
  • do they involve special measures to protect the
    interests of the poor?

8
  • (Continued )
  • How effective have coping policies and mechanisms
    been at the macroeconomic level and at the level
    of the poor?
  • What overall energy strategies and policy
    inventions can best cope with oil price
    uncertainties in the future?
  • Which specific strategies and policies can
    enhance the poors access to energy services?
  • Approach, Methodology and Coverage
  • Global a review of developing country
    experiences during previous oil price crises, an
    analysis of the factors underlying current oil
    price trends and an assessment of impacts that
    have occurred so far.

9
Is the current spell of oil price increases
different from past price rises?
  • Unlike sharp and short-lived spikes of 1979
    1991, prices have risen persistently for more
    than 3 yrs. since late 2002
  • 21 April 2006 oil price 75.18 240 increase
    over 2002
  • Prediction of Goldman Sachs WB 105 by end
    of 2006
  • Real prices are, however, still well below the
    Dec 1979 peak of USD 97.50, suggesting room for
    further increases
  • Threat for global economies
  • possibility that oil prices may have switched
    from cyclical trends (where price fluctuations
    follow market cycles and corrections) to a
    secular trend (a steady long-term upward trend)
    that could last 5-20 years)

Regional Centre in Bangkok
10
Impacts so far at global level
  • Major macro-economic indicators have not been
    impacted significantly so far.
  • World GDP declined by 0.7 during 2004-2005,
    inflation remained modest till 2005 and no
    serious decline in oil intensity of GDP.
  • However, these facts could be deceptive as they
    are prompted by
  • Insufficient time-lag for full impacts to be
    reflected yet
  • Greater resilience of world economies
    ..especially developing Asia ( large countries )
  • Inflationary effects not visible moderated by
  • Limited pass through due to regulated pricing
  • Low weight of energy in regions price indices
  • Powerful lobbies keep petroleum subsidies high

Regional Centre in Bangkok
11
Regional Assessment
  • analyze, by sub-region, country vulnerabilities
    to higher oil prices using key energy, economic,
    social, geophysical and geopolitical indicators
  • establish possible correlations between changes
    in international oil prices and key macroeconomic
  • social variables
  • review policies on petroleum pricing, economic
    development, energy security, social
    infrastructure and poverty reduction/MDGs.

12
How has the Asia-Pacific region been affected by
rising oil prices so far?
  • On a region-wide basis, macro-economic impacts
    have been modest,
  • consistent with global trends
  • GDP growth not significantly reduced since rapid
    economic growth in countries like China and India
    tends to offset growth declines elsewhere
  • Inflationary effects modest due to limited price
    pass-through, low weightage of oil prices in
    consumer price indices, and continued petroleum
    price regulation/subsidies prompted by power
    lobby pressures
  • No serious decline in foreign reserves due to
    surge in capital inflows into the regionTrade
    balances not adversely affected so far due mainly
    to Chinas and Indias burgeoning exports
  • However, Pacific Island Countries, entirely
    dependent on imported oil
  • with low domestic industrial development, have
    registered steep rise in inflation and
    significant adverse trade balance

Regional Centre in Bangkok
13
Potential future impacts of continuing uptrend
in oil prices?
  • At todays price of 75/b the expected GDP
    decline ranges from 1.25 to 2.50
  • Contraction in trade surpluses among Asian
    developing countries due to higher costs of
    exports
  • Surge in inflation and interest rates impact
    production costs of goods and services Higher
    unemployment triggered by cost-cutting measures
    among manufacturers/service providers
  • Most adverse impacts likely to occur in
    oil-importing developing countries with low
    economic resilience
  • Poor highly venerable Low capacity for direct
    and indirect impact
  • Negative implications for the MDGs weakening of
    fiscal situation will force governments to reduce
    public expenditure on rural infrastructure,
    social investment and poverty reduction
  • On a positive note, high oil prices will provide
    an impetus to reduce oil intensities and import
    dependence limited UNDP role
  • What interventions are UNDP s niche ?Address
    Access to energy Issues as a driver to achieving
    MDGs ..component of IPS ?

Regional Centre in Bangkok
14
North-East Asia and MekongAll economies in the
sub-region, except Viet Nam, are oil
importersChinas huge foreign reserves impacts
the sub-regions relatively high GDP growth
rates, obscuring the vulnerabilities of smaller
countriesLao PDR, Mongolia and Viet Nam
experienced high rates of inflation Cambodia
and Lao PDRs lack of openness renders them
vulnerable, potential to earn foreign exchange
through oil exports being lowCambodia and Lao
PDR are with the highest reliance on traditional
biomass fuels, limiting economic growth and
poverty reduction will be severely curtailed
Regional Centre in Bangkok
15
  • South-East Asia
  • Relatively stable GDP growth mainly in Malaysia
    and Thailand
  • High trade deficit in Philippines
  • High inflation in Myanmar
  • Negative GRP growth in Timor-Leste
  • Malaysia is the only net oil exporter
  • Overall, Myanmar will be most vulnerable in this
    sub-region due to low economic capacity, high
    dependence on traditional fuels and lowest per
    capita energy consumption

Regional Centre in Bangkok
16
  • South and West Asia
  • On the whole, the sub-region has healthy GDP
    growth rates in all countries, with Indian
    economys growth setting the pace, accompanied by
    prospects of increasing intra-regional
    trade/economic integration
  • Maldives and Sri Lanka however, have experienced
    high inflation rates
  • All countries, except Iran, are net oil importers
  • Afghanistan, Bhutan, Maldives, Nepal and Sri
    Lanka are wholly dependent on oil imports as they
    have no domestic petroleum production
  • Bangladesh, Bhutan and Nepal are especially
    vulnerable due to high dependence on traditional
    fuels

Regional Centre in Bangkok
17
National Assessment ( China, India, Indonesia
and Lao PDR)
  • review petroleum sector policies
  • track macroeconomic and sectoral variables,
    public spending on social sectors and sustainable
    energy development
  • in selected oil-intensive sub-sectors, assess
    impacts on production costs, coping mechanisms
    and their impacts on producers, consumers and
    governments and
  • consult policy makers on key determinants of oil
    price impacts and options to safeguard the poors
    interests in a climate of oil price volatility.

18
Micro level assessment (rural and urban case
studies in China, India, Indonesia and Lao PDR)
  • assess local impacts of recent oil price
    increases at the level of poor communities
    through household surveys, key informant
    interviews, focus group discussions with
    vulnerable groups (particularly women) and energy
    service providers (especially petroleum product
    suppliers)
  • consult local authorities and stakeholder groups
    on their perceptions of the impacts of oil price
    increases and the effectiveness of responses from
    local government agencies, community groups and
    individual households North-East Asia and
    Mekong, South and West Asia, South-East Asia, and
    Pacific Island Countries.

19
Observed micro effects
  • Poor households more affected particularly in
    urban areas
  • Cases of switch back to biomass from kerosene as
    SKO prices moved up
  • Higher transportation costs effects access to
    school and healthcare in rural areas, in urban
    areas impact more on trips to work place
  • Cases of rural households withdrawing children
    from schools situated further away even if these
    are better schools
  • Effects on agriculture rise in transportation
    costs for agriculture-related activities
    increase in price of fertilizers and pesticides
  • Urban poor found to be most vulnerable higher
    oil penetration, fewer energy alternatives and
    higher transportation costs

Regional Centre in Bangkok
20
At the level of poor households MDGs?
  • Energy expenditure has increased by 45 overall,
    due mainly to higher prices of kerosene, LPG and
    diesel
  • 39 of poor urban households have stopped using
    LPG/kerosene for cooking
  • 44 of poor urban households have reduced
    consumption of these fuels to less than 50
  • Biomass fuel consumption has increased as a
    result, and increased health hazards and time
    expenditure on fuel gathering
  • Many households stay in darkness for longer hours
    due to reduced use of kerosene for lighting

Regional Centre in Bangkok
21
At the level of poor households MDGs
  • Cost per trip by public transport to school,
    health centre and marketplace has nearly doubled
    health care has been most affected some have
    withdrawn children from better quality schools to
    lower quality schools closer to villages
  • In rural-urban comparisons, the urban poor have
    so far been more acutely affected by higher oil
    prices due to their greater reliance on oil
    products, fewer energy alternatives

Regional Centre in Bangkok
22
At the level of poor households MDGs
  • Case study of India impacts on the poor
  • At the level of poor communities (including both
    poor and non-poor households)
  • widening income disparities, with poor family
    incomes rising only 25 as compared to 61 in
    non-poor families
  • declining share of energy expenditure, especially
    among poor families, due to reduced diesel and
    kerosene consumption
  • 50 increase in transportation expenditure
  • 25 increase in expenditure on fertilizers and
  • 30 increase in expenditure on pesticides

Regional Centre in Bangkok
23
How best to stop this process ?
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