Comment
Financing universal health coverage by cutting fossil fuel subsidies Several countries that allocate large sums of public funds to fossil fuel subsidies have low public health spending and associated low health coverage. Two such nations, Indonesia and Iran, have eliminated these subsidies to finance health coverage and other social priorities. Other countries with high expenditure on fossil fuel subsidies are considering similar reforms, suggesting that the reallocation of fuel subsidies could become an important mechanism for countries to pursue universal health coverage. Worldwide, nearly half a trillion dollars were spent on fossil fuel subsidies in 2010.1 Although these subsidies were at first intended to protect poor people from high fuel costs, in practice they are more likely to benefit wealthy households, promote overconsumption of fuel, and discourage energy efficiency.2 Furthermore, cutting of fossil fuel subsidies has been associated with favourable economic factors, including stronger currencies and improved current accounts deficits.3 Abolishment of fuel subsidies, however, is often difficult to pursue because of public opposition. Indeed some attempts to reduce fuel subsidies, such as those in Nigeria,4 Indonesia,5 and Sudan,6 have been met with violent protests. The perceived benefits of fossil fuel subsidies are apparent in daily life, and their removal is felt abruptly and immediately. Meanwhile, reallocation of funds towards other government programmes can take time to yield results, especially in the case of large infrastructure projects. In places where corruption is common, people might be sceptical that savings will be effectively used for such programmes and therefore prefer to retain the benefits they already receive from fossil fuel subsidies. Rapid health-care reforms, however, have been shown to deliver tangible benefits to the population relatively quickly.7 Record-low oil prices provide a buffer that now makes such reforms more politically feasible than ever before, and several countries are moving to redirect fossil fuel subsidies into health investment. Indonesia, for example, has eliminated the fuel subsidies that constituted nearly 20% of government spending between 2009 and 2013 and, coupled with food subsidies, amounted to the same sum the central government had earmarked for health and education www.thelancet.com/lancetgh Vol 3 June 2015
combined.8 In implementing this unpopular policy, President Joko Widodo has immediately allocated additional funds to scale up coverage for social services. This scale-up has included the launch of a new free health-care card for poor households not covered by previous health insurance schemes.9 In Iran, fossil fuel subsidies accounted for the largest portion of the nearly $100 billion spent every year on subsidies10 and contributed to a rate of fossil fuel consumption twice that of other countries in the Middle East. Iran cut fossil fuel subsidies by 20% in 2010 and reallocated nearly 50% of these gains towards social assistance programmes for poor people, including health coverage. According to the International Monetary Fund, subsidy reform, which was initiated under former President Mahmoud Ahmadinejad, has resulted in a sustained decline in income inequality since the mid-2000s.11 Several other countries with high fossil fuel subsidies and poor health coverage have attempted similar reforms but have faced challenges (table). In Bolivia, for example, where fossil fuel subsidies use up to $400 million per year, attempts to curtail subsidies in 2011 were met with mass street protests. Venezuela has faced similar political resistance in attempts to reallocate the nearly 6% of gross domestic product (GDP) used to subsidise fuel towards other needs. Ecuador has spent $3 billion on subsidies in the past 4 years alone and, although President Rafael Correa has been vocal about the regressive nature of domestic fossil fuel subsidies, the country continues heavy subsidisation because of passionate popular support.
For data from the International Energy Agency see http://www. iea.org/subsidy/index.html For public health expenditure data from WHO see http://www. who.int/gho/countries/arg. pdf?ua=1
Fuel subsidy rate* (%)
Per capita PHE (US$)†
Bolivia
44·1
220
Average regional PHE (US$)‡ 430
Ecuador
51·2
290
430
Nigeria
28·8
50
45
Turkmenistan
65·7
130
200
Uzbekistan
58·7
120
200
Venezuela
92·7
210
430
PHE=Public health expenditures. *Subsidy rate represents the proportion of government subsidy over the full cost of supply; data obtained from the International Energy Agency. †Data obtained from the World Health Organization. ‡Average per-capita total health expenditure in other countries in the same region.
Table: Countries with high fuel subsidies and no universal health coverage scheme
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Comment
Nigeria, which has some of the worst health indicators in the world,12 cut fossil fuel subsidies in 2010 with the intention of redirecting funds towards maternal and child health programmes, only to partly reinstate a subsidy because of widespread protests. In the budget submitted for 2015, former President Goodluck Jonathan proposed a 50% reduction in fossil fuel subsidies. Whether his successor, Muhammadu Buhari, will continue to push such reforms is unclear, as doing so would enable the government to increase health spending in a country with one of the lowest public allocations for health globally.13 Many other countries, such as India, Ukraine, Turkmenistan, and Uzbekistan, have high fossil fuel subsidies and low health coverage and are well positioned to benefit from similar reforms. However, for this to happen, the leaders of these countries need to understand the potential benefits of this reform and develop strategies to communicate these advantages to reduce public opposition. As increasing numbers of such countries move towards universal health coverage, redirection of fossil fuel subsidies could become an increasingly important policy instrument to enable simultaneous tackling of several development priorities. Specifically, these countries will be able to expand health coverage, mitigate climate change by reducing their use of fossil fuels, enhance economic growth, and reduce income and health inequalities. Perhaps just as importantly for the political leaders concerned, such reform will enhance their popularity and ensure continued political relevance for them in future elections.
We declare no competing interests. Copyright © Gupta et al. Open access article distributed under the terms of CC BY. 1
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Whitley S. Time to change the game: fossil fuel subsidies and climate change. London: Overseas Development Institute, 2013. http://www.odi. org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/8669.pdf (accessed Jan 27, 2015). The Economist. Fossil-fuel subsidies: The green-growth twofer. The Economist (London), Jan 10, 2014. http://www.economist.com/blogs/ freeexchange/2014/01/fossil-fuel-subsidies (accessed April 27, 2015). Watts J. Markets rally as Indonesia cuts fuel subsidy. The Wall Street Journal (New York), Nov 18, 2014. http://blogs.wsj.com/moneybeat/2014/11/18/ markets-rally-as-indonesia-cuts-fuel-subsidy/ (accessed Jan 27, 2015). Associated Press. Nigeria restores fuel subsidy to quell nationwide protests. The Guardian (London), Jan 16, 2012. http://www.theguardian.com/ world/2012/jan/16/nigeria-restores-fuel-subsidy-protests (accessed Jan 27, 2015). The Telegraph. Police and students clash in Indonesia over fuel price subsidy. The Telegraph (London), March 27, 2012. http://www.telegraph. co.uk/news/picturegalleries/worldnews/9169384/Police-and-studentsclash-in-Indonesia-over-fuel-price-subsidy.html (accessed Jan 27, 2015). BBC News. Sudan fuel protests: ‘50 shot dead.’ Sept 27, 2013. http://www. bbc.co.uk/news/world-africa-24297347 (accessed Jan 27, 2015). Limwattananon S. Universal coverage with supply-side reform: the impact on medical expenditure risk and utilization in Thailand. J Public Econ 2015; 121: 79–94. Lagarde C. Fulfilling the Asian dream—lasting growth and shared prosperity. April 7, 2013. http://www.imf.org/external/np/speeches/2013/040713.htm (accessed Feb 3, 2015). The Economist. Indonesia’s anti-poverty plans: full of promise. The Economist (London), Jan 10, 2015. http://www.economist.com/news/ international/21638129-cutting-fuel-subsidies-makes-space-ambitiousincome-top-up-scheme-full-promise (accessed Feb 3, 2015). The Economist. Iran: cut those subsidies. The Economist (London), April 30,2014. http://www.economist.com/blogs/pomegranate/2014/04/ iran (accessed Feb 8, 2015). Staff Representatives for the 2011 Consultation with the Islamic Republic of Iran. Staff report for the 2011 Article IV consultation. Washington: International Monetary Fund, 2011. http://www.imf.org/external/pubs/ft/ scr/2011/cr11241.pdf (accessed Feb 8, 2015). Anekoson JI. A comparative analysis of health indicators of Nigeria and Rwanda: a Nigerian volunteer’s perspective. Am J Public Health Res 2013; 1: 177–82. Ibukun Y. Nigerian president seeks to cut fuel subsidies after oil decline. Bloomberg News (New York), Nov 20, 2014. http://www.bloomberg.com/ news/2014-11-20/nigerian-president-seeks-to-cut-fuel-subsidies-afteroil-decline.html (accessed Feb 8, 2015).
*Vinay Gupta, Ranu Dhillon, Robert Yates Department of Pulmonary and Critical Care Medicine (VG) and Division of Global Health Equity (RD), Brigham and Women’s Hospital, Boston, MA 02115, USA; Department of Politics and International Studies, University of Cambridge, Cambridge, UK (VG); Earth Institute, Columbia University, New York, NY, USA (RD); and Royal Institute of International Affairs, Chatham House, London, UK (RY)
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