In recent years, the Gulf countries have taken many decisions related to vital economic and financial reforms and with significant future impact. The assessment of the reforms from a professional perspective, whether agreeing with them or not, is vital to build on the gains and minimise undesirable consequences.
Let’s take one of the most important measures, which was to raise fuel prices and assess its economic and environmental aspects. Data available on gasoline consumption in Saudi Arabia indicates that demand for gasoline fell in the first quarter by 7 per cent to 549,000 barrels a day, compared to 590,000 barrels last year. Keep in mind that Saudi Arabia had doubled fuel prices as early as January.
Although petrol is currently at 2.04 riyals (Dh1.99) a litre, it is still considered one of the cheapest in the world, ranking fifth after Kuwait.
This clearly indicates there has been a great deal of exaggeration about fuel consumption and waste by consumers. This was caused by low prices created by subsidies, which cost the GCC economies billions of dollars every year. Demand has declined despite economic expansion, which is usually associated with a spike in consumption and means the real decline is higher than that declared.
In addition to reducing subsidies to a minimum, such an approach has led to a reduction in the budget deficit and a dependence on oil revenues in funding budget expenses. It has also saved hundreds of thousands of barrels a day from the reduction in domestic consumption and diverted them to exports, thus offering additional revenue to the states and strengthening their trade and balance of payment.
Reduction in inflation
Environmentally, this has helped cut the amount of gas emitted from fuel consumption, thereby reducing pollution and improving the environment. At the same time, some social groups who were least able to afford the higher prices have been compensated.
What applies to Saudi Arabia also applies to the rest of the GCC countries that have raised prices, who have also witnessed some economic changes that contributed to reducing inflation rates caused by rising fuel prices.
These positive developments, economically and environmentally, must be strengthened by linking fuel prices to international markets and announcing changes on a monthly basis in accordance, as the UAE does with its coordinated mechanism.
On the social and educational side, there are fears consumers will become accustomed to the new prices and return to the previous pattern of excessive consumption that does not necessarily reflect the daily transport and other basic needs. This will bring things back to square one, especially with the high living standards resulting from any increase in wages and subsidies.
This requires making every effort to clarify the importance of economic and environmental effects from growing consumption. This is not limited to the material ability of individuals but on their impact on the financial situation of countries, which affects all members of society.
Eventually, these steps do preserve the environment and resources in keeping with a sustainable development approach, and to which communities must retain a commitment.
— Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.
