The UAE’s decision to remove transport fuel subsidies and raise petrol prices could encourage other GCC nations to follow suit, ratings agency Fitch has said.
In a statement, the firm said:
“We think that governments in the region understand the benefits of subsidy reform, including both fiscal cost savings, and more efficient resource allocation and energy consumption. However, reforms have so far have been uneven and incomplete.”
As of Aug. 1, gasoline and diesel prices in the UAE will be calculated after taking global prices into account. The new prices will be announced a few days before the start of each month, but shouldn’t have a notable impact on individuals’ costs of living, the country’s energy minister said.
The move comes after a collapse in oil prices and renewed calls from the International Monetary Fund for Gulf countries to reform their subsidy schemes.
In recent years, ministers in both Oman and the UAE have spoken about tackling the issue, which also involves utilities like water and energy.
“You will never have a strong economy if you are subsidizing,” UAE Energy Minister Suhail Al Mazrouei told reporters in June 2014, according to Bloomberg. “In consumption of electricity, we are two to three times the global average, and we are not happy about that level.”
Meanwhile, in May, Bahrain, one of the countries hit hardest by lower oil prices, said it would cut subsidies for expats but did not give any timeline for implementing reforms, Reuters reported.
Qatar questions
However, it remains unclear if government officials in Qatar would embrace the idea of cutting fuel subsidies.
Petrol prices in Qatar are among the most affordable in the world, according to a recent survey by vehicle sales website Carmudi.
Retail prices are frozen at QR1 (US$0.27) for a liter of “super” and QR0.85 ($0.23) for a liter of “premium” petrol.
So far, there has been no public suggestion by officials that the country is considering a reduction in subsidies, though in one of his first national addresses, Emir Sheikh Tamim bin Hamad Al Thani highlighted the need to not squander money.
Still, according to the IMF, fuel subsidies only account for 1.64 percent of Qatar’s GDP, which is the lowest among the Gulf countries.
Saudi Arabia and Bahrain are among the highest, with pre-tax energy subsidies in 2015 accounting for 4.62 percent of GDP, Fitch states.
Thoughts?
Is there an option to cut SUBSIDY in our salary as well so that it will RISE as well?
That makes no sense. Seems like time for you to go home
Dear MIMH
Most of the time your rants on south Asian and low earning wage earners may have made sense, but please understand the fact the before pointing fingers on others four fingers point at you
a) Fuel Subsidy : It is for the local Qatari market, it is not for exports, so what indirectly you are trying to say that the State of Qatar is justified in cutting subsidies for fuel, but it is okay then for them to move towards double digit inflation which again would hamper their growth big time.
b) Hampering Nation Building : With nation building , it is okay to put a speed barriers on growth which is essential towards achieving Vision 2030, again this point is to drive the point number #1 in to your mind
c) Only poor nations are faced with the epidemic of corruption : After seeing a series of “match fixing” and essentially corruption on the beautiful game, i am left to wonder what actually have the mighty, great and good governance run countries did to stem that growth in the first place, make me wonder how sophisticated is corruption in the your respective countries .
d) Racism only exits here : Again, with the news I am watching on CNN and other news outlets makes me feel that the racism on low earning wage out here is angelic, atleast they dont get shot at. Here again you may say but that is only a few psychos doing so, but how come those phys cos dont exist in these poor third world countries. BTW what one of the most learned commentators said that every nation to reach the first world status do accommodate racism, because as the saying goes some ones misery is some others happiness, atleast the young nation is taking some steps to fix that issue , now whether it is a baby step or a giant leap may be debatable , but not as bad judging by the history books which we learned , and i believe is not distorted to conceal facts
e) colonial mid set : It is okay to cling in to the colonial mindset from time to time, if that make certain class of your type categories happy, but remember unfortunately the world order is changing and you will be shocked to know that some people who eat from garbage bins of mumbai , and now the owners of some of the costliest mansion in the same place, and just going by the stats happens to be the most expensive as well. People from these nation and working hard very hard to break that cycle of poverty.
f) again the news: I do watch most of the news channels from time to time, and from what I gather the greek exit was the biggest blunder of all and yet the so called first world nation could not fix that issue, I can go and go on the flaws and easy remedies to fix it but alas i am also influenced by a famous english poet i believe William Wordworth “Never argue with a fool:
as of now i am done for the moment, but whenever you finished riding on your high horse , please come down and do some reflections , it goes a long way in seeking peace with one self
It seems you can’t stay on argument, this is about Qatar. It is always a poor argument to say, “yes this is bad, but look at these people they are worse”
Indian yes has some of the richest people in the world but also have a large number of the world’s poor including slaves, so which are you more proud of?
Yes racism exists everywhere, so what? Your argument is pointless regarding Qatar.
Colonial mindset? It seems you suffer from that more than me.
Corruption? Yes FIFA is corrupt but most of that corruption is exported from African, Asian and Caribbean countries. If it wasn’t for western media pursuing it and the U.S. Authorities it would have continued. Did African or Asian media raise the subject or did the authorities pursue the corruption? Of course not. Neither did South America. Compared to the west these places are hotbeds of corruption in daily life.
The last point, cutting fuel subsides would lead to double digit inflation and would hurt growth. Well you don’t understand economics, Qatar is not a normal economy and is driven by government spending.
This is an excellent move by the UAE and Qatar should follow. There is no justification of such ridiculous subsidies, as it just encourages waste. (Hello you people that leave you car running when you go into the shops, one day I will steal your car….)
The bit in Qatar I don’t get is why would you buy premium when super is ridiculously cheap anyway?
I have to disagree. Compared to UAE, Qatar’s transportation infrastructure is still in its infancy. Removing subsidies will only result in overloading the only one public transportation system (Mowasalat) that we have.
Now, if you’re just pissed off at Driver’s who leave their cars outside of the shops and unattended, I think that removing fuel subsidies will not remove that. Because, Qatar will just increase the salaries of their citizens to compensate the increasing gas prices.
In the end, the only ones who will truly be affected are non local residents, who are already feeling the weight of excessive housing rents, school fees and overpriced commodities (which again are not felt by Qatari Residents).
If Qatar does truly wish to look for additional revenues, they can implement toll collections (similar to UAE) and place taxes on cigarettes and alcohol.
I think you are confusing residents with citizens.
I agree on housing and schooling. The landlord cartel are distorting the market even though the demand is not there, for schooling the demand is there and they are taking advantage of it and they are partly screwed by landlords as well.
Petrol subsidies of this scale are unjustified.
Petrol subsidies is only 1.64 percent of Qatar’s GDP. Keep the subsidy. BTW, I’m confused that you think Elkhorn is confused. 😉
No, I’m not confused. That’s the official terminology of the Qatari Government, where Qataris are considered as Citizens, and working Expatriates are residents.
http://portal.www.gov.qa/wps/portal/people/Citizens+and+Residents
If you’re concerned about Petrol Subsidies, then why not just increase the price of the Petrol – which will lessen the subsidies. Or they can consider dynamic pricing, where gas prices will be low during summer season (June – September) and high during winter season (November – March).
During summer, local demands are low because of people going on vacation, yet those who stay can use their vehicles to avoid walking and waiting in the summer heat. During winter, while demand is high, subsidies will be less because of the high pricing. And it also motivates people to walk more or using public transportation, instead of using their car.
There are many options that are available, but removing subsidies, especially during summer season, will be more pain for those who are already financially suffering.
Any solution that removes the true market for energy costs, distorts the market place in a very unhealthy way, and actually works to drive costs up in many cases in related areas having the opposite effect. While you do not see this come through to your wallet in terms of gas prices, you will instead find the distortion in everything from vehicle prices to logistics. Then factor in that when gas is cheap people make poor decisions about vehicles that burn too much fuel and create additional pollution. Also consider that oil wealth is dependent on there always being oil or gas around or that there is continued demand. As we can see already, the US, China, Russia, and other non-OPEC states need only ramp up production to crater prices. This puts pressure on the governments in the GCC that are highly dependent on high energy prices to ensure they can “subsidize” their local population. What happens when the virtually free petrol, the completely free electricity and water, and all the other goodies dry up? Chaos. The only logical thing to do, is for Qatar to slow walk out of this mess. Its better for their economy, better for their government, and better for the environment. Advocating a continuation of a culture of waste and pollution, subsidized by the government is simply not sustainable.
Then in this statement you mean citizens
“In the end, the only ones who will truly be affected are residents, who are already feeling the weight of excessive housing rents, school fees and overpriced commodities (which again are not felt by Qatari Residents).”
The my apologies. I have edited the last word “Resident” to reflect the correct terminology. Pardon for my language, I am not a fluent English speaker.
No worries, not trying to make anyone feel bad. Peace out
So they buy more buses. Still saves money on subsidies and decreases traffic on roads. Not seeing a downside to that one. The increase in fuel prices to the individual is negligible. Especially to people that make high salaries. It does impact the poorer population more, but the economy will adjust. It again is not going to send the economy into hyper inflation or a death spiral. If anything it would be healthy to slow walk these out over the course of a year or two.
If inflation was not bad enough, raising fuel prices will see it skyrocket as it will give every service, shop and vendor an excuse to increase prices.
Well it’s not really about fuel costs is it? It’s about affordable mobility for many people, the short-sightedness in comments would seem ironic, if not for a pattern of well-thought out commentary preceeding these.
How do people get around in countries with high fuel costs and no subsidies? Oh, thats it….they dont drive tanks to the office 40 KMs in each direction and spend their weekends driving in circles at Katara or leaving the car running for 3 hours while they go shopping. Trust me….Qatar and its people that need to get around will be just fine.
Maybe it would be a good idea to wait until the Metro is in operation before cutting fuel subsidies. As for utilities the subsidy probably encourages waste to some degree, but without it people would still need to use their AC to live comfortably in this climate, and any inflation in living costs will inevitably get picked up by the employers and ultimately the Client – Qatar.
The funny thing with AC, they have them in other parts of the world as well that are hot. I have lived in a few, but its amazing when you have a house that is not 12 bedrooms and 42 bathrooms how much less AC one needs. The entire region could use a big downsizing. It will eventually happen on its own. Cutting fuel subsidies should have no relation to a Metro or a road or a bus. People simply make different decisions about what they drive and where they live. Its the way the rest of the world works, and it works just fine.
Only 42 bathrooms? I have that many in my drivers room.
Qatar’s GDP for 2014 was $218.8 Billion according to the world bank (or about the total revenue of the Apple Corp). If they saved 1.65% of that, this is $3.49 Billion. This is more than the GDP or Eritrea,Guyana,Burundi,New Caledonia,Aruba, Lesotho,Maldives, Faroe Islands, Liberia (etc. etc.). When one thinks of the lost opportunity cost (the cost of that money not being spent by the government or private sector) it is really quite astronomical. There are many other things a government could do with that money that would create jobs, spur growth, create a more sustainable future rather than trying to make life cheaper in the now. The policies lack vision and foresight and put the future of the entire country and its economy at risk just so a few people can run their ACs in giant homes and drive fuel sucking SUVs around in circles all day. Really, its a shame. Its money that has zero economic investment or return. Just a sunk cost.
3.49 B out of 218.8 B to keep their citizens happy, thats not a bad bargain. We know what happens if the citizenry is unhappy.