Lifting of energy subsidy to bolster growth: Economists

Saudi Gazette report

RIYADH – Several Gulf states have taken drastic measures aimed at revitalizing their economy and to gradually diversify their revenue sources. These measures included revising the prices of fuel and power in the domestic markets.

Some of these countries either raised the energy prices last year or deregulated and linked them to global prices.

These countries have been working to bolster their national economies and make them as stable and efficient as possible so that they can optimize government resources and develop the infrastructure, and most importantly, rationalize consumption of energy resources, Al-Jazirah newspaper reported quoting economic experts.

Saudi Arabia has embarked on a journey to restructure its economy and enhance sustainable growth away from oil revenue.

"In the new scenario, the government agencies play a supervisory and monitoring role while the private sector operates and implements. That is why the government has taken numerous measures to increase the efficiency of the economy, rationalize spending, enhance competitive advantage and redistribute subsidy to the deserved segments of society. The government subsidy to energy exceeds SR300 billion annually, which poses a heavy burden on the national economy," said economist Muhamad Al-Anqari.

The energy prices saw a light increase last year to restore the prices to the same level they were around 10 years ago. However, the government's new plan to restructure the prices relies on giving subsidy to the deserving segments of society through the Citizen Account Program, which will help and support citizens who will suffer as a result of the increased energy prices. The program supports families and helps them get by the price increase.

The Gulf countries have increased and deregulated fuel prices and even linked them to global prices in a move that will bring many benefits to their economies. The fuel subsidy has led to irrational consumption affecting the economy in a negative way. Domestic oil consumption has reached 800,000 barrels a day, accounting for 23 percent of the total domestic energy consumption.

Saudi Arabia ranks fifth globally in terms of fuel consumption with around 4 million barrels a day. The Kingdom does not enjoy a very good rating compared with global economies, yet its fuel consumption is higher than Germany, which consumes 2.2 million barrels a day and ranks fourth in the list of strong economies of the world.

“We mainly export oil and its derivatives and import almost all our needs from countries abroad. Our non-oil export is limited. That is why we need to increase the efficiency of consumption. This can be done only through lifting the subsidy on fuel,” Al-Anqari explained.

Around 12 million vehicles ply on the Kingdom's roads and they consume so much fuel. These roads need maintenance, which cost the government a lot of money. If the government had not lifted the subsidy on fuel and had not kept the roads in good condition, the number of vehicles would have doubled in coming years, causing the government to spend much more money for the maintenance of road networks.

The government would have ended up spending more and more on the transport sector, a decision that would have a negative impact on oil exports and the Kingdom’s share in oil markets around the world, Al-Anqari said.

Ahmed Al-Jubair, another economic expert, said revising energy prices would help increase state income and bolster economic growth. It will also enhance privatization and raise the contribution of the private sector to the gross domestic product, in addition to creating jobs and expediting Saudization. It will also diversify the economy and expand the non-oil revenue resources for the government.

Global economic conditions have changed in light of the drop in oil prices.

“As citizens, we must support the government in its Vision 2030 and National Transformation Program 2020. The government focuses on building a strong Saudi economy to achieve sustainable growth and improve the living standards of all citizens but at the same time alleviate the effects of lifting the energy subsidy. This is why the government has launched the Citizen Account Program,” Al-Jubair said.