Category Archives: Morocco

Lost in Translation: Energy Subsidies

“Energy subsidies” has become a phrase synonymous with the Middle East’s feeble efforts to reform and rightside budgets. 

Governments across the region, including Egypt, Jordan, Morocco, and to some extent even oil-rich Gulf states like Saudi Arabia, have struggled to address their addiction to subsidies that provide cheap fuel to sate the masses. They want to scrap expensive energy subsidies but fear they will provoke riots if they do.

But as huge international institutions like the International Monetary Fund and the International Energy Agency muscle in with their expertise on how to end this costly system that will cost $600 billion this year, a substantial error has been overlooked.

These multinational organisations claim they have the technical expertise to help the Arab world with its most costly problem, but in fact have no standard way to measure energy subsidies, according to energy consultancy OpenOil.

Stephanie Heerwig, writing for OpenOil, explains:

The IMF, IEA, EIA, OECD, UNEP, you name it – use either different methodologies or different assumptions or both and routinely come up with wildly different estimates for the same country in the same year.

Not only are the data swilling around the public domain confusing – I might expect that – but the methodologies and assumptions on which it is based are incoherent most of the time. And what is particularly striking – there is no consensus on how to measure the subsidies. How could that be, given their huge impact on carbon emissions and government budgets?

So while the definition of energy subsidies is easy, there are hundreds of mechanisms that could fall under “an energy subsidy”.

What I have found out, especially when reading a brilliant paper by Doug Koplow, is that not only do major organizations often use different methodologies, they may use different underlying assumptions to arrive at radically different results even with the same methodology.

For instance, according to estimates by the International Energy Agency the total amount of subsidies on oil products in Egypt amounted to $9.2 billion in 2007. The IMF, however, estimates a figure of $3.8 billion, for the same year using the same methodology! That is a difference of about 58 percent! What a statistical margin of error. 

Koplow, in the paper, compares 2007 estimates for total amount of subsidies on oil products from two of the biggest organisations, the IEA and the IMF (in billions of US dollars):

price compairson

Heerwig goes into some detail on how these organisations come to such conflicting data. The conclusion is clear, however: If “experts” can’t even agree on the level of subsidies in each country, how can we expect the Egyptian government which is going through a monumental transition, to come up with a better alternative?

No, this doesn’t mean Egypt is off the hook. But the nation, and others in the same boat, must seek as many different opinions as possible to come to a sound solution. This argument inevitably ends at the same conclusion for Egypt: be more inclusive and do not continue to mistake that working in isolation is a mark of power.


Breakfast Wrap: Egypt Debt Default, Algeria Life Line, Abu Dhabi Debt Clampdown

While Egypt’s government deliberates over what economic plan they will present to the IMF to show they deserve almost $5 billion, the North African nation’s level of economic risk remains high.

Egypt is among 10 countries likely to default on its sovereign debt within five years, data from CMA shows.

Credit default swap (CDS) spreads, or the cost of insuring Egypt’s debt against default, is among the highest in the world.  Even so, CDS spreads in Egypt stabilised following a volatile election in the second quarter, with spreads coming in nearly 29% to close at 438 basis points from 617 basis points.

Again in English?

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Breakfast Wrap: Iraq Central Bank Head Suspended, Mubarak’s Laundromat

Nothing is more controversial in business and finance than banking, as we saw yesterday with the media storm that erupted after the departure of Vikram Pandit as chief executive of Citigroup.

But the most contentious of all are the central banks.  These are organisations sitting at the juncture of both economic and government policy.

Yesterday we saw how controversial this industry can be when the governor of Iraq’s Central Bank was booted over allegations he had intentionally weakened the value of the Iraqi dinar against the US dollar.

“The cabinet decided to authorise Abdelbassit Turki, the head of the Board of Supreme Audit, to run the central bank indefinitely,” Prime Minister Nuri al-Maliki’s spokesman Ali Mussawi said, adding that Sinan al-Shabibi had been suspended from his post by the anti-corruption watchdog.

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Bloggers Beware

Governments are prepared to spend billions of dollars to protect the state.   Dictatorships will spend even more to maintain the status quo.

One day in July, a blogger from the United Arab Emirates discovered the extent his government would go to make sure his voice was silenced.

Ahmed Mansoor, an outspoken blogger from the UAE and a member of the “UAE Five” — a group of Emirati activists jailed last year for criticizing government leaders — opened a suspicious e-mail with a Microsoft Word attachment that, when opened, “deployed spyware that could monitor his every keystroke, record his passwords, social networking and instant messenger chats and even his voice conversations through his computer’s microphone,” Nicole Perlroth writes in this great New York Times article.

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