DAVOS, Switzerland, Jan 22, (AFP): The sharp drop in the price of oil, the lifeblood of Gulf economies, is an opportunity to end subsidies and introduce reforms in the energy-rich region, ministers said Friday.
“With low prices … it is the right time” to cut subsidies on oil products, Kuwait’s Finance Minister Anas al-Saleh said at the World Economic Forum in Davos, Switzerland.
In a panel on the future of economic reform in the Arab world, Saleh — also Kuwait’s acting oil minister — said that record low oil prices would make the lifting of subsidies on fuel products easier on consumers.
“We saw an opportunity to have people do the right thing, which is to pay the right cost of energy,” said Emirati energy minister Suhail al-Mazrouei.
“We need to rethink about major reforms that make our budgets independent from oil revenues,” he added.
After liberalising fuel prices in June, Mazrouei said the United Arab Emirates is looking into lifting subsidies on other products and services, including on electricity.
“That’s not healthy,” he said, speaking of gas sold to electricity providers at subsidised rates, stressing the need to “apply international prices”.
The head of Bahrain’s Economic Development Board, Khalid al-Rumaihi, went further, describing the sharp drop in oil revenues as a “blessing in disguise,” because it provides an “opportunity for reforms”.
He named fiscal reforms and widening the economic base in Gulf countries as potential outcomes of lower oil revenues, which represent the bulk of receipts for most Gulf countries.
Saleh argued that governments will need to formulate a way to help needy citizens when oil rebounds.
“What if it goes up again? We’ll have to look at rationalising subsidies … to those who need” them, he said.
Unlike Kuwait and UAE, Bahrain is a minor oil exporter. It recently cut subsidies on diesel and petrol.
Kuwait began selling diesel and kerosene at market prices at the start of 2015, and on Thursday its emir announced plans to raise the prices of petrol, electricity and water.
Saudi Arabia, the world’s largest oil exporter, also took unprecedented measures to cut subsidies on energy products, as it posted a record budget deficit of $98 billion (90 billion euros) in 2015.
The International Monetary Fund has urged the Gulf monarchies to cut their subsidies’ bills as their revenues shrink.
Oil prices have shed about 75 percent in 18 months due to a supply glut, weak demand, overproduction and a slowing global economy.