Fuel Subsidies May Prevent Spending on Poorest, World Bank Says

Energy subsidies may be preventing governments from Egypt to Malaysia from spending enough on social programs that would help the poor, the World Bank said.

Fuel subsidies are highest in the Middle East and North Africa, where they account for more than 4 percent of gross domestic product, the World Bank said in a report released today. That compares with 1 percent of GDP spent on social safety net programs such as conditional cash transfers, it said.

Energy subsidies “mostly have an impact on the upper-income groups in the population, who are more likely to be consuming electricity and fuels in larger quantities,” the bank said in the report. They “may crowd out other types of public spending, explaining low spending on social safety nets.”

The bank’s report finds that less than a third of people living in extreme poverty are covered by social transfer programs.

“The poorest countries are worse-off in terms of covering the extreme poor,” the bank said.

In low-income countries, where 47 percent of the population lives with less than $1.25 a day, safety nets cover less than 10 percent of the population, it said.

The report also finds that the five largest safety nets in the world, which include school feeding programs, are located in India, China and Brazil, and together account for half of the global coverage.

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