Saudi newspaper claims government assessing to cut subsidies

Saudi Arabia’s Al Watan newspaper says government considers cutting gasoline subsidies in order to hike prices as Kingdom’s economy struggles amid plummeting oil prices

Photo by: AP
Photo by: AP

A row of oil pumps work in the desert oil fields of Sakhir, Bahrain, June 10, 2014

Saudi Arabia's government is studying whether to cut state subsidies that keep domestic gasoline prices at some of the lowest levels in the world, a major Saudi newspaper quoted unnamed sources as saying.

Al Watan's Saturday edition quoted the sources as saying Saudi authorities had been considering the issue for several years, but the matter had taken on additional importance after the neighbouring United Arab Emirates reduced subsidies and allowed gasoline prices to rise last month.

Saudi Arabia cannot leave gasoline prices at their current ultra-low level indefinitely, because that would hurt the economy, the sources added.

The newspaper did not elaborate on when the government might reach a conclusion on the issue, and it did not give details of the possible reform.

But it quoted Fahad al Anazi, deputy chairman of the economic and energy committee in the Shura Council, a top state advisory body, as saying any changes to subsidies would have to be accompanied by other measures to preserve public welfare, such as the provision of cheap public transport.

Because higher gasoline prices could lead to inflation in other goods, Anazi suggested the government might introduce new subsidies for some food and other consumer items, or distribute cards allowing some people to purchase fuel at subsidised prices. Such subsidies would be provided to Saudi citizens rather than the large number of foreigners in the country.

Economists estimate that removing subsidies on gasoline would save the kingdom nearly $8 billion (30 billion riyals) annually, Al Watan reported.

Allowing gasoline prices to rise would be one of the biggest economic reforms in Saudi Arabia for many years and, because of the large number of low-income Saudis who rely on cheap fuel, politically sensitive.