Date Published:
Mar 12, 2012
Policy Notes
Focus Area(s):

Amid rising international crude oil prices that have once again breached the US$100 per barrel mark and sparked calls for a return to government regulation of the oil industry, the reinstitution of the oil price stabilization fund (OPSF), and the provision of subsidies, among others, this paper contends that a throwback to regulation and the concomitant OPSF might not be the appropriate coping mechanism given the country’s costly experience that contributed to the past huge chronic fiscal deficits. Further, instead of direct subsidies that should only be sparingly resorted to, the projected huge windfall accruing from the VAT on oil can be better used for employment-generating, productivity-enhancing, and inclusive growth-inducing expenditures on infrastructure and other social services. There might also be a need to plug the policy gaps in the Oil Deregulation Law to further improve the monitoring of oil prices as well as cost structures. Note that high oil prices are price signals that should spur efficient demand-side management as well as reinvigorate the search for viable supply-side supplements, if not alternatives especially for the transport sector.

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