Fuel up, subsidies to be slashed: Saudi braces for cost-cutting reforms

Published December 29th, 2015 - 01:00 GMT
Al Bawaba
Al Bawaba

The Cabinet on Monday approved increases in the pump prices of gasoline as well as electricity and water rates, the first of a series of “comprehensive economic, fiscal, and structural reforms” recommended by the Ministry of Finance.

Gasoline price hikes are to take effect after 12 midnight Monday, while the adjustments in electricity and water rates will start on the first day of Rabiul Thani in the Islamic calendar, equivalent to January 11, 2016 in the Gregorian calendar.

Octane 91 will now cost 75 ($.020) from the current 45 halalas. Octane 95 will increase to 90 halalas ($0.25) from the current 60 halalas, a Cabinet announcement carried by the Saudi Press Agency (SPA) said.

With the directive, Saudi Aramco has ordered that all gasoline stations across the kingdom be closed by nightfall to allow the adjustment of prices in their pumping machines.

Other Gulf states such as the United Arab Emirates and Kuwait have earlier raised their pump prices amid a decline in oil prices worldwide, resulting in reduced revenues.

The new rates were approved during a Cabinet session on Monday, during which Custodian of the Two Holy Mosques King Salman also announced a national budget plan of SR840 billion ($224B) for 2016, with a view to reducing the deficit and a drive to raise revenues from sources other than oil.

In a press statement released earlier in the day, the MOF revealed plans to review government subsidies for fuel, electricity and water as the government announced cuts in the 2016 budget.

The ministry said it is considering “revisions in energy, water, and electricity prices gradually over the next five years, in order to achieve efficiency in energy use, conserve natural resources, stop waste and irrational use, and minimize negative effects on low and mid-income citizens and the competitiveness of the business sector.”

Another measure mentioned by the Finance Ministry is a review of current levels of fees and fines, introduction of new fees, and completion the necessary arrangements for the application of the value added tax (VAT) approved by the Supreme Council of the Arab Gulf States Cooperation Council at its 36th session held in Riyadh last month.

The ministry also called for the “application of additional fees on harmful goods such as tobacco, soft drinks and the like.”

Among the other measures outlined by the MOF are more on structural reforms, including:
• Reducing the growth of recurring expenditures, especially wages, salaries, allowances and the like, which amounted to SR 450 billion, exceeding 50 percent of the approved budget expenses.
• Optimizing operating expenditures, including the rationalization of government agencies’ expenses, the utilization of technology (IT) for the delivery of government services, and the development and strengthening control and governance mechanisms.
• Completing the revision of the government’s competitiveness and procurement law, in accordance with world-class practices.
• Establishing a unit in the Ministry of Finance for public debt management. The new unit will be responsible for developing and overseeing the public debt and financing strategy and strengthening the Kingdom's ability to borrow both domestically and internationally; thus contributing to the market for sukuk and local bonds.

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