BUSINESS DAY
Like Nigeria, Indonesia embarked on fuel subsidy removal to allow for sustainable growth and channel revenue pumped into reductions of gasoline prices into capital projects.
But the South Asian largest economy canceled its subsidy in phases to avoid pushing citizens into shocks that may arise from such adjustments.
After unsuccessful attempts in 1998, the over 250 million populated nation eliminated the majority of gasoline and diesel subsidies by January 2015.
“Indonesia’s phased approach to subsidy removal, coupled with targeted social safety nets, mitigated the immediate adverse effects on the poor,” Adeola Adenikinju, president, Nigerian Economic Society (NES) said.
“Despite initial unrest, this approach eventually stabilized social conditions,” he added in a presentation at the 65th annual conference of NES in Abuja.
According to the World Bank, Indonesia’s gross domestic product (GDP) stood at $860.9 billion as of 2015 – year of subsidy removal – but grew to $1.37 trillion in less than 10 years.
The multilateral lender forecasts Indonesia’s gross domestic product growth to average 5.1 percent per year from 2024 to 2026.
It’s also ranked 10th largest economy in terms of purchasing power parity, indicating a viable economy and high living conditions.
Indonesia’s energy reforms, according to the NES president, enhanced energy availability and infrastructure resilience, reducing the likelihood of shortages and contributing to a more stable energy supply.
Nigeria and Indonesia have closely identified economic history and population. While the Asian country has grown its economy to an over 1 trillion dollar one, its peer lags but with a target of 2030 in sight.
Nigeria canceled a costly petrol subsidy which had kept prices artificially low and strained the already dwindling government’s revenue last May.
This end to an age-long subsidy not only sparked reactions among Nigerians, but saw prices tripled, leading to a rise in inflationary pressures and deterioration of living conditions.
“Nigeria’s 2023 reforms, while aiming for similar outcomes, have faced challenges in ensuring immediate energy security,” the Economics professor said.
“The subsidy removal led to price volatility and concerns about energy affordability, revealing the complexities of balancing economic imperatives with social and energy security considerations,” he added.
Indonesia’s example shows that energy reforms work best, when certain conditions are in place: “domestic refining value chain; critical infrastructure for transportation and logistics; complementary policies and mechanisms to cushion the short-term social costs”.
THIS STORY FIRST APPEARED IN BUSINESS DAY
