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Subsidies being rolled back across the GCC
January 24, 2016, 5:25 pm

In his recent audience granted to editors of local newspapers, His Highness the Amir Sheikh Sabah Al Ahmad Al Sabah has said that Kuwait plans on cutting heavy subsidies on fuel and power in a bid to offset a fall in oil revenues.

“We will lift subsidies and will raise the prices of petrol, electricity and water” and reduce subsidies for other services, the Amir was quoted as saying to the editors. The Amir urged the parliament to cooperate with the government to pass laws to reduce budget deficit, saying that belt-tightening was in the country’s future interest. His Highness however did not give any specific timeframe for implementing the price hikes.

Earlier, His Highness the Amir had ordered His Highness the Prime Minister Sheikh Jaber Al-Mubarak Al-Hamad Al-Sabah to take the process needed to restudy the Amiri Diwan budget and affiliated bodies as well as rationalize it, said Deputy Amiri Diwan Minister Sheikh Ali Jarrah Al-Sabah.

In other steps to compensate for revenue lost from the plunge in oil prices to their lowest level since 2003, Kuwait’s Finance Minister Anas Al Saleh said the country could consider introducing income, corporate and sales taxes. “The state should also ponder raising the cost of public services and cut government spending,” Al Saleh is reported to have said according to a statement released by the Finance Ministry.

At present Kuwait remains the outlier among the six-nation Gulf Cooperation Council (GCC) in not hiking the prices of petrol and power despite the oil prices that have plunged since mid-2014. Saudi Arabia, the UAE, Qatar, Oman and Bahrain have either hiked, or liberalized fuel and power prices, saving billions of dollars.

The UAE which hiked fuel prices last August said last week that it was looking at removing subsidies on both electricity and on gas sold to companies generating power. This was stated by the country’s Energy Minister Suhail Al Mazroui, while speaking at the World Economic Forum in Davos, Switzerland.

“Consumers need to pay the real price. They already do so for petrol and diesel, and electricity is still to come, and we will look at the subsidized sale of gas to power providers,” Al Mazroui said. He pointed out that this process of subsidy reduction is part of a much wider strategy to make the government budget independent of oil revenues.

Bahraini authorities see the current environment of low prices as a prime opportunity to carry out long overdue economic reforms. To date, officials have undertaken steps concerning two areas of subsidies, namely those related to meat and petroleum products. The subsidy for red meat was lifted in the second half of 2015. The second part of redesigning subsidies dealt with increasing prices for petrol — on the premium grade by a notable 60 percent — earlier this month and has proved notably unpopular. The third move, which is expected in the days to come, involves raising prices for electricity and water. There is no talk of doing away with subsidies for utilities in its entirety, but rather reduce the amount of support in a material way.

Similar subsidy cuts were announced by Saudi Arabia, which said that it would raise fuel prices by 50 percent, following the country posting a record $98 billion budget deficit in 2015 due to the sharp fall in oil prices. The country’s Shura Council is also considering proposals to revise the investment strategy of the kingdom’s social insurance fund in order to raise returns, the advisory body said in a recent statement.

The Shura Council’s finance committee also recommended that the General Organization for Social Insurance consider tying retirement benefits to the inflation rate, SPA said.

In mid-January, Qatar announced that it was raising the price of fuel by a third or more, amid the slump in oil prices. The energy-rich country had announced last summer that it would face its first budget deficit in 15 years in 2016 because of the fall in energy prices. In December, it was forecast that lower energy prices would leave Qatar with a hole of around $12 billion in the 2016 budget.

On the same vein, Oman said it is considering major reforms in order to cut spending and increase revenues amid an oil price slump that has resulted in a significant rise in the country’s deficit. The country announced fuel hikes in January and is said to be studying measures to levy taxes on remittances, increasing taxes on real estate rent contracts, as well as rises in electricity tariffs, traffic fines, vehicle registration, renewal and insurance fees, according to media reports.


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