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Saudi Arabia Delays Energy Subsidy Cuts

The non-oil private sector economy in Saudi Arabia last month declined to its lowest reading since October 2016.The non-oil private sector economy in Saudi Arabia last month declined to its lowest reading since October 2016.

Saudi Arabia will probably delay plans to raise gasoline and other energy prices until later this year or early in 2018 amid an economic slowdown, according to four people familiar with the matter. The PMI has also dipped to an eight-month low in June.

The government plans to raise energy prices in October at the soonest and most likely early next year, according to the people, who asked not to be identified because the information isn’t public. Energy Minister Khalid Al-Falih said in December that the next increase “will not be late in 2017.” A spokesman for the finance ministry declined to comment, Bloomberg reported.

The government delayed the next round of price increases because it wanted to ensure that an increase won’t slow industrial activity, two of the people familiar with the matter said.

Saudi Arabia is trying to rein in spending and reduce dependence on oil after a global slump in crude prices. Energy-subsidy reform is a key part of the reform plan, along with the sale of stakes in state-owned entities, including the world’s biggest crude exporter known as Saudi Aramco.

The kingdom raised fuel prices in December 2015 and announced plans for more hikes. But gross domestic product shrank by 0.5% in the first quarter, showing the scale of the challenges the government may face as it seeks to overhaul an economy still reliant on a struggling oil industry.

Payments to low- and middle-income Saudis to help them adjust to the subsidy cuts and other austerity measures, expected to begin this month, have also not started. The benefits program, called the Citizen’s Account, will take effect before energy prices are raised, Al Watan newspaper reported on Wednesday, citing Yaser al-Zahrani, a media center official for the program. No date has been set yet, he said.

 PMI Drops

A key indicator of the kingdom’s non-oil private sector economy last month declined to its lowest reading since October 2016, even as companies raised output and added jobs to cope with new export orders.

The Emirates National Bank of Dubai Saudi Arabia purchasing managers’ index dipped to an eight-month low of 54.3 in June from 55.3 in May, which the bank said was consistent with a marked but slower improvement in business conditions in the kingdom.

The bank issues the monthly survey of business conditions in Saudi Arabia’s non-oil private sector through financial information services company Markit. A reading above 50 suggests that the non-oil economy is growing, while a reading below 50 suggests that it is contracting.

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