Cut in petrol subsidy not the only goal of price rise – ‘Cleaner air, lesser traffic jams’

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KUWAIT CITY, July 4: Reducing the value of the petrol subsidy is not the only goal of the rise is prices. There are eight primary reasons for the recent decision to rationalize the government subsidy for petrol products in Kuwait, according to sources linked to Al-Qabas daily.

The prices of different types of petrol will rise by varying amounts, with Ultra petrol set to rise by 83 percent, indicating that the expected financial effect is not the most important reason for the taking of this decision.

This can be further seen in the expected savings which will only be equal to approximately 0.01 percent of the total budget of 19 billion dinars, reports Al-Qabas daily.

These sources indicated that it is necessary to see the decision as one of a number of financial reforms to improve the Kuwaiti economy which has stalled in the past few months as a result of the opulence of the billion-dollar revenues from the sale of oil.

The drop in the price of fuel and barrels of oil under the pressure of the financial deficit presents an exemplary opportunity to carry out these reforms, even if the decisions are unpopular and face widespread disapproval and repudiation from a large section of society.

The other reasons for taking this decision to reduce and rationalize the subsidy for petrol products are as follows:

1) The increase in the price of petrol is an important measure among other reforms in the state budget which is suffering from a large monetary deficit because of the drop in the price of oil upon which it depends for its revenues. It aims to reduce the cost of the subsidies in the budget and should raise nearly billion dinars — in other words 30 percent of the total expected oil revenues. It also includes measures to reduce expenditure and slow down its growth in a big way.

These measures would contribute to balancing government expenditure with revenues and would help to maintain the country’s strong economy. The drop in the petrol subsidy comes within the framework of a package of reforms which aim to improve national economic performance, guaranteeing the opening of the market to local and foreign investments. It should also allow for further privatizations of government owned industries.

2) This measure would also act as a positive step to improve Kuwait’s standing among international credit ratings agencies. By reducing the petrol subsidy, Kuwait would show how its commitment in taking the required financial and economic reforms to improve the general financial situation in the country.

3) This is a necessary measure to combat the permanent danger which Kuwait faces if it continues to spend as it does currently. By reducing the subsidy, the government could relieve pressure on the oil reserves and stop using the reserves of the next generation.

4) By balancing Kuwaiti oil production with consumption, there will be an increase in the export of oil. The subsidy for petrol is set to decrease whilst local production will increase by 2.5 percent which guarantees the national income of about 150 million dinars annually, through the distribution of a large number of barrels of oil, which were earmarked for the energy sector. The benefit from their sale abroad will support the budget.

5) By increasing the price of petrol, the government will be able to redistribute the government subsidy to all its citizens. International reports confirm that the richest in society reap the benefits from low energy prices whilst families with a limited income benefit from it less. This is one of the many issues which led to the rationalization of the subsidy which will now guarantee that everyone benefits from it according to his need.

6) Kuwait was recently listed among the countries with the highest rates of consumption, because of the cheap price of oil thanks to the government subsidy. Kuwait used to be the cheapest country in the world for oil before some recent changes which led to it becoming the fourth cheapest internationally. International reports also indicate that Kuwait occupies the sixth place internationally for energy consumption, as the consumption of energy in Kuwait rose by 0.9 percent on average for the last four decades. By reducing the subsidy, Kuwait can reduce its rates of consumption.

7) The challenge of reducing environmental pollution is another reason for reducing the subsidy, as it should lower rates of consumption which makes Kuwait one of the world’s most polluting countries. The emission of carbon dioxide and other noxious gases means that the country might suffer from an increase in its spending on the treatment of the impact of the environment and spending on necessary treatments for ill health.

8) Finally this measure should reduce traffic jams which clog up Kuwaiti highways. It is expected that some people will switch to public transport to combat the effect of the price rise in petrol as it will also encourage companies and initiatives to create new methods of public transport and respond to the needs of workers.

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