Will Oman go United Arab Emirates way on fuel subsidies?

29/07/2015 09:34 AST

Muscat: Experts believe Oman will probably follow the United Arab Emirates (UAE) to end subsidies on domestic petrol as the Sultanate looks at ways to rein in its chronic deficits that have dogged its budgets in the last five years.

The UAE yesterday announced that domestic petrol prices will increase 23.6 per cent from AED1.72 to AED2.14 from August 1. Oman’s neighbour said that it would revise petrol prices every month based on global average prices. That means, if international oil prices go up, drivers in the UAE would find a trip to their offices becoming dearer.

“I would not be surprised if Oman contemplates doing exactly the same thing. If a much richer country like the UAE is now strapping itself for a tighter fiscal budget then Oman will find it hard to balance its accounting sheet if it continues with its policies of subsidies,” Said Al Shihri, an independent economist, told the Times of Oman.

The UAE has already announced that it will cut its spending in the next budget for the first time in 13 years. Oman on the other hand, may put the brakes on spending in 2016, as international prices are at the moment trading at around $51 per barrel. Oman earned an average $115 per barrel in June 2014 before an oil glut in the world market forced prices down after heavyweight producers like Saudi Arabia kept pumping in more oil.

“It is just a matter of time before Oman decides to drop fuel subsidies like the UAE. I have no doubt in my mind that the decision to cut subsidies in fuel will be done by the first quarter of next year. I am sure the Ministry of Finance is looking keenly at the development in the UAE while reflecting on the 2016 budget to balance the books,” said financial analyst Fareed Al Ojaili.

Petrol sold in Oman is among the cheapest available anywhere in the world, but the government is subsidising it by as much as 50 per cent. It has remained unchanged for more than a decade. Like the UAE, Oman has been increasing spending for more than a decade to finance various infrastructural projects at the cost of rising budget deficits.

“Let us look at the bright side. If Oman goes for the deregulation of petrol prices, which it is more likely to do, there will be many advantages such as a cleaner environment, lower fuel consumption, reduced road congestion and support to the national economy,” Ahmed Al Habsi, economic analyst at Capital Investment Company, told the Times of Oman.

But the UAE, while hiking petrol prices across the nation, has reduced diesel by 29 per cent from AED2.90 to AED2.05.

“Oman would want to follow suit on this too. Dropping diesel prices makes a lot of sense since this will reduce the overheads of local industries to make their productions cheaper. As a result, prices of goods in the local markets will be more competitive and people will save money from their shopping. It will offset higher spending for your car but get a relief on your monthly spending. This way, everybody is a winner,” added Al Shihri.

Times of Oman