By NEIL HARTNELL
Tribune Business Editor
The poorest 40 percent of Bahamian society are among the hardest hit in the Latin American and Caribbean region by any increase in fuel prices, an IDB study has found.
The newly-released Inter-American Development Bank (IDB) report, which analyses the impact of energy taxes and subsidies in 11 countries, found that only Ecuador suffers a greater total "welfare loss" than low income Bahamians when gas and diesel prices rise by as little as 25 cents per litre.
Bahamians among the poorest 20 percent of society sustained a loss equivalent to 2.4 percent of their income, while those in the next-highest bracket endured a 2.5 percent decline, according to the report's findings.
"The indirect impact of gasoline and diesel price rises on household welfare tends to be regressive," the IDB study and its five authors found. "Increasing the cost of gasoline and diesel imposes a relatively higher welfare cost on poorer households than on wealthier ones in every country in our sample.
"The indirect effect of the price hike on the lowest quintile (20 percent of society) ranges from 0.7 percent of a household's budget in Uruguay to over two percent in The Bahamas."
The results highlighted The Bahamas' ever-growing vulnerability and exposure to rising, volatile global oil prices as a result of its near-100 percent dependency on fossil fuels. For the 25 cent per litre rise in fuel costs was shown to result in energy cost increases that were more than three times' higher, in percentage terms, than any other country in the Latin American and Caribbean region.
The IDB study showed electricity prices in The Bahamas would increase by 36 percent in such circumstances, with the next highest increase being Ecuador's ten percent. Transportation costs were also forecast to rise by 7.9 percent.
"Electricity is also significantly affected by the price increases, especially in the Caribbean and other countries where power generation relies heavily on petroleum products. For example, electricity prices increased by 36 percent in The Bahamas and 8.6 percent in Barbados."
Breaking household consumption down into categories, the study found that 38 percent of the impact on Bahamian society's poorest 20 percent from such a fuel price hike was felt in their light bill. Household services and gasoline/diesel purchases felt 16 percent and 12 percent of the impact, respectively.
"In all countries except The Bahamas, Barbados, Costa Rica and Guatemala, the main vehicle through which diesel and gasoline price hikes decrease the welfare of the bottom quintile is higher public transportation costs," the authors wrote. "In The Bahamas and Barbados, ensuing electricity price increases are the most important factor affecting the poorest households."
The study also modelled the effects of a $0.05 cents per kilowatt hour (kWh) increase in electricity prices themselves. This found that the poorest 20 percent of Bahamian society would suffer a welfare loss equivalent to 1.5 percent of their income, and those in the next bracket up a 1.4 percent loss.
This illustrates how even the smallest increase in energy costs results in a cut to living standards, purchasing power and disposable income among those segments of Bahamian society least able to afford it. Those on higher incomes are better able to absorb the impact.