The International Monetary Fund (IMF) expects oil prices to gradually increase to around $75 per barrel by 2020, which could buy net importers like the Philippines more time to save on fuel imports and adjust their petroleum taxes.
In its report, titled “Global Implications of Lower Oil Prices,” re-leased on Tuesday, the IMF, how-ever, said there is “a lot of volatility” surrounding this forecast.
“The oil-price outlook is highly uncertain; but a substantial part of the oil-price decline is expected to persist into the medium term. Futures markets imply an increase in Brent oil prices to some $75 a barrel in 2020, but recent experience—including the Brent price rally to about $65 a barrel in April—suggests there may be considerable volatility around this upward trend,” the IMF said.
To minimize the impact of this volatility, the IMF advised net oil importers to spend their savings on long-term projects.
It also urged both oil exporters and net oil importers to explore fuel and taxation reforms during the period. This is the same call made by the country’s planning agency, the National Economic and Development Authority (Neda), which was supported by multilateral development banks, such as the Asian Development Bank and the World Bank.
Neda Director General and Economic Planning Secretary Arsenio M. Balisacan said increasing excise taxes on petroleum will augment the shortfall in customs revenues brought about by lower pump prices. This view was also aired by Finance Undersecretary Gil S. Beltran.
World Bank Philippines economist Rogier van den Brink also said lowering income and corporate taxes could help broaden the tax base, as well as revising the real-property tax to aid in the government’s revenue-collection efforts.
Increasing excise taxes are necessary, since former Budget Secretary Benjamin Diokno said the “biggest loser” in the decline in oil prices will be the government, because taxes on oil and oil products will also decline.
The Bureau of Internal Revenue (BIR) collects excise taxes from oil importers. An excise tax is a tax on the production, sale or consumption of a commodity in a country.
The highest excise tax on petroleum products that is collected by the government is for lead premium gasoline at P5.35 per liter. Unleaded premium gasoline, on the other hand, is slapped with a P4.35-per-liter excise tax.
Further, the IMF explained that investing now on these oil and tax reforms are necessary considering that the 50-percent drop in oil prices in 2014 should have resulted in a 0.5-percentage-point increase in global growth this year.
The IMF said this increase may not be realized due to the global uncertainties surrounding the rebalancing in China and financial troubles of the euro zone. These reasons were highlighted by the IMF in the recently released World Economic Outlook Update.
This is the reason, the IMF said, why it revised downward its 2015 and 2016 growth forecasts for the world and even for net oil importers like the Philippines despite the drop in oil prices.
The IMF cut economic growth projections for emerging economies to 4.7 percent in 2015, lower than the April estimate of 4.8 percent.
The IMF also cut its growth forecast for the Asean to 4.7 percent this year and 5.1 percent next year, from the April estimates of 5.2 percent in 2015 and 5.3 percent in 2016.
“After accounting for the limited pass-through to retail prices, the fall in oil prices should boost global growth by about half a percentage point in 2015 to 2016, but other shocks are expected to offset this positive effect. Headwinds include slowing growth in emerging markets and developing countries; these are partly related to structural bottlenecks, reassessment of potential growth, and geopolitical risks,” IMF said.
Oil fell for a third day, as Iran and world powers neared a nuclear agreement that would allow the Islamic Republic to increase crude exports in an oversupplied market.
Futures slid as much as 1.5 percent in New York. Diplomats are preparing to present the final text of an expected deal with Iran after 18 days of talks. Saudi Arabia told the Organization of Petroleum Exporting Countries it raised output to a record in June as the producer group forecast stronger demand for its members’ crude in 2016.
Oil’s rebound from a six-year low in March has faltered amid economic uncertainty in China and Greece and speculation a global glut will persist as Iran seeks to regain market share. Prices may fall further as the world remains “massively oversupplied,” according to the International Energy Agency.
“More oil from Iran is not a good sign, given the market is already flush with supply,” David Lennox, an analyst at Fat Prophets in Sydney, said by phone. “The risk for prices is to the downside, primarily because of that supply situation.”
(With Bloomberg News)