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The ceiling for local petrol prices will be set at June’s levels, or 2.18 riyals (58 cents) per liter of 91 octane. Image Credit: Bloomberg

Riyadh: Saudi Arabia’s government set an upper limit for domestic petrol prices and said the state would bear any extra costs, softening an energy subsidy cut programme that’s drawn complaints from citizens.

The ceiling for local petrol prices will be set at June’s levels, or 2.18 riyals (58 cents) per liter of 91 octane, as of Saturday, according to a statement carried by the official Saudi Press Agency. The decision was made to “decrease the burden of living costs on citizens and residents” and “support local economic activity,” a state committee for amending energy prices said in the statement.

The decision comes days after the International Monetary Fund urged Saudi authorities to cut civil service wages and subsidy spending, while taking steps to protect the welfare of low-income families. The kingdom’s petrol prices are among the lowest in the world - around two-thirds that in the US.

The change will blunt the impact of subsidy reforms introduced by Crown Prince Mohammad bin Salman and is a nod to complaints from Saudis about the rising cost of living under his economic diversification programme. Inflation in the world’s largest oil exporter stood at 5.7% in May - the latest figure available - driven by higher food and vehicle prices as well as a move to triple the value-added tax last year.

Saudi officials have closely monitored discontent as Prince Mohammed’s plan was rolled out over the past five years, and have occasionally reversed or eased changes that drew vocal grumbling as the kingdom’s social contract is reshaped.

Rising petrol and electricity prices have drawn particular ire since 2015, when the subsidy reform was introduced to promote more efficient consumption and help plug a budget deficit brought on by plunging oil prices. Today, some Saudis believe that increasing oil prices should actually lead to lower costs at the petrol pump because of the boost they provide to government finances.

Saudi Arabia’s local cost of petrol will still change monthly in response to global energy prices, but now the government will cover the difference of any increase that would have exceeded June prices, the committee said.