World Economy

Saudi Gov’t Slows Pace of Energy Subsidy Cuts

The government is planning to raise local gasoline prices by about 80% in January.
The government is planning to raise local gasoline prices by about 80% in January.

Saudi Arabia is extending its timeline to cut energy subsidies as the government seeks to offset the impact of austerity measures on the stagnating economy, the finance ministry said.

Domestic gasoline prices will now reach parity with international levels gradually between 2018 and 2025—compared to the previous target of 2020, according to the ministry’s 2018 budget statement. Local diesel prices will also be raised gradually to 90% of international prices over the same period, Bloomberg reported.

It’s the first time the government has released a detailed timeline for lifting energy prices, which have long been heavily subsidized in Saudi Arabia. Crown Prince Mohammed bin Salman’s blueprint for an economy less dependent on oil includes balancing the government’s books, but the new budget announced on Tuesday slows the process after low oil prices and austerity measures including new taxes triggered an economic contraction in 2017.

Other prices will be changed as follows:

- Local prices for natural gas and ethane will be raised to 75% of the international prices between 2020 and 2021 “with the imposition of a price cap in 2021,” the ministry said, without giving details

- Prices for liquefied natural gases, including propane and butane, will be raised to 90% of international levels in 2020; the earlier plan was for international parity that year

- Jet fuel will be lifted to international levels in 2018, earlier than the previous plan for a gradual rise from 2019 to 2020

- Residential and commercial electricity prices, previously scheduled to reach 100% of international levels this year, will now be raised gradually between 2018 and 2025.

- Industrial electricity prices will now be raised gradually between 2019 to 2025, compared with earlier plan to reach international levels this year

- Water prices will also be adjusted, it said, without giving details.

The plan is subject to change according to fiscal developments, according to the ministry. The government is planning to raise local gasoline prices by about 80% in January, a person with knowledge of the matter said earlier this month.

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