Sustaining Fuel Subsidy Reform (CFR)

Economists widely agree that the subsidies, which reduce consumer prices for petroleum and natural gas below free-market prices, often strain government budgets, fail to target poverty efficiently, and distribute benefits unfairly. Yet, political barriers often obstruct practical policy changes; for example, the prospect of street protest discourages sensible subsidy reform. The plunge in oil prices, however, allowed many reform initiatives around the world to move forward. This report by the Council on Foreign Relations (CFR) analyzes three ways governments have historically reinforced such reforms against backsliding: by depoliticizing fuel prices and transferring control over prices to independent regulators; by pre-empting popular discontent and rapidly demonstrating tangible economic benefits from reform; and by locking in partial subsidy reforms with subsequent incremental reforms. Further the authors discuss the role that the US could play in helping countries to consolidate their reforms. The report is available to download on the website of CFR.