Mena States Must Reduce $200bn Subsidy: IMF

Countries in the Middle East and Northern Africa (Mena) region are spending $200 billion on general subsidies and there is a need to curb this spedning, a senior IMF official said.

IMF’s Middle East and Central Asia Department director Masood Ahmed, answering a question from TradeArabia during an  IMF briefing in Tokyo, said these subsidies are not an efficient way of helping the poor, because the bulk of the spending are going to people who consume more energy, who are generally better off.

“In our view, it’s important to protect the poor. But the better way to do that is more targeted form of subsidy rather than subsiding enegry for all – rich and poor,” he said.

On the volatily of oil price and its impact on budgets, he said oil exporting states have built up record levels of surpluses. “However, we must remember that only in the recent past the price had been at much lower levels,” he warned.

Although the price of oil has fallen from its April peak, thanks in part to recovering supply from Libya and record volumes of oil production in Saudi Arabia and Kuwait, it is expected to stay close to its 2011 levels in 2012–13. As a result, the oil exporters’ combined current account surplus is anticipated to remain at its historic high of around $400 billion in 2012, an IMF report said.

However,

these record surpluses are sensitive to a change in the oil price: a 10 percent drop in oil prices would bring down that surplus by about $150 billion, it said.

“In the budget planning, it’s always useful to introduce an element of margin to be able to have a buffer to sustain the programmes in the time of lower oil price,” he said.

Though a number of these countries have built up huge reserves, there others who have fixed their breakeven levels at a high oil price. These will face problems in adjusting their spending quickly when the oil prices are down, he said.

In the context of booming oil prices and growing social demands, government

expenditure on wages and salaries has been

rising dramatically in most oil exporters in recent years. This stepped-up spending has contributed to a faster increase in fiscal breakeven prices (the oil price at which an oil exporter’s fiscal balance is zero for a given level of spending and revenues) relative to increases in the actual oil price, he said.

TradeArabia