UAE Savings From Motor Fuel Price Reform To Grow In Coming Years
$OIL
The IMF estimates that the UAE’s reform will save it about $500-M by the end of this year
The government of the United Arab Emirates (UAE) will save only a modest amount of money from reforms to its fuel price system in Y 2015 but the savings are likely to rise sharply in coming years, an International Monetary Fund official said Tuesday.
Last week the government shifted from a system of fixed, subsidized domestic prices for motor fuels (gasoline and diesel) to adjusting prices monthly in response to global trends. In the 1st adjustment, gasoline rose 24% and diesel fell 29%.
It was the 1st big fuel pricing reform in a rich Gulf Arab Crude Oil exporting country for many years, and has aroused speculation that others in the region will follow suit to cut the burden of subsidies on state finances.
Kuwait, Oman and Bahrain are considering subsidy reforms; some analysts believe Saudi Arabia may eventually take action.
Zeine Zeidane, adviser in the IMF’s Middle East and Central Asia Department, estimated the UAE’s reform would save it about $500-M by the end of this year, or a little over 0.1% of GDP.
But annual savings are expected to rise sharply over the medium term to around 0.6% of GDP, Mr. Zeidane said.
The IMF’s projections assume the UAE’s average Crude Oil export price will increase gradually into Y 2020.
Under the UAE’s new pricing formula, the government would no longer have to spend growing amounts of money to keep domestic motor fuel prices down as global prices climbed, it could let them rise, increasing the savings to its budget.
The IMF now expects low global Crude Oil prices to push the UAE’s consolidated state budget into a deficit of 2.9% of GDP this year, its 1st deficit since Y 2009.
Crude Oil prices have dropped steeply in the last few weeks, with Brent Crude Oil is trading at 49.69 bbl, at its lowest marks since January, this could result in a wider deficit than projected. The IMF estimates a 10 drop in prices cuts the UAE’s fiscal balance by about 2.3 percentage pts of GDP.
In addition to gasoline and diesel, there is huge potential for the UAE to save money by reducing Nat Gas subsidies, which are estimated to be worth about 3% of GDP.
Stay tuned…
HeffX-LTN
Paul Ebeling
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