World Economy

Saudis Fumbling to Balance Deficit

Petrol prices are set to increase by about 80%.Petrol prices are set to increase by about 80%.

Saudi Arabia plans to raise domestic petrol and jet fuel prices in January, part of a program to gradually eliminate energy subsidies as the kingdom seeks to overhaul its economy and balance the budget, according to a person with knowledge of the matter.

Petrol prices are set to increase by about 80%, while jet fuel prices will be raised to international levels in one go, the person said, asking not to be identified because the matter was not public. There would be incremental increases over several years in petrol and other fuels such as diesel, kerosene and heavy fuel oil, the person said, Bloomberg reported.

Excluding jet fuel, prices would not reach international levels until 2023 at the earliest, and potentially by 2025. Electricity tariffs would not be increased directly, but would rise gradually with other energy prices, the person said. The finance ministry, which oversees the subsidy reform program, did not immediately respond to a request for comment.

Saudi Arabia first reduced subsidies in December 2015, when oil price rose 40% to $0.24 per liter. The new plan represents a slower timeline for the removal of subsidies as the government tries to offset the effect of the measures on a struggling economy.

Authorities first reduced subsidies in December 2015 after years of debate as oil prices plummeted. Officials later said they would eliminate them entirely by 2020, part of Crown Prince Mohammed bin Salman’s Vision 2030 plan for the post-oil era.

The world’s biggest oil exporter is struggling to cope with low prices and spending cuts aimed to reduce a budget deficit that reached about 15% of GDP in 2015. The economy contracted in the first two quarters this year.

Finance Minister Mohammed Al-Jadaan said in an interview in October that prices of some subsidized domestic energy products would rise to international levels later than previously seen. Authorities would not rush to balance the budget by 2019 to avoid hurting growth, he said. Next year’s budget will be announced on December 19.

The ministry of labor and social development will on Tuesday announce the details of a cash transfer program, known as the Citizen’s Account, according to state television. Officials have said that the payments, intended to compensate low- and middle-income Saudis for austerity measures, will begin before the next round of subsidy cuts.

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