Abu Dhabi government likely to reform electricity and water subsidies

power-bernardwee-flickrThe government of Abu Dhabi is seeking ways to streamline subsidy policies for water and electricity across the emirate. (Image source: BernardWee/Flickr) The Abu Dhabi government is expected to reform its subsidies on water and electricity, according to a senior International Monetary Fund (IMF) official

The reason behind considering reforms is the current price of oil – according to Reuters, the price of Brent oil reached US$82 per barrel last week, which is a four-year low. Several Gulf countries exporting oil are reviewing their respective welfare systems due to declining global oil prices that are weighing down on their finances.

Harald Finger, head of mission for the UAE at IMF, said, “We discussed it here at the policy level and with the Abu Dhabi government, which is looking at ways to streamline subsidy policies and put in place something different and better targeted. This is particularly the case of the electricity and water subsidies.”

Based on statistics and estimates put together by the IMF and the Abu Dhabi department of finance, subsidies and transfers would account for nearly US$13bn or 20 per cent of Abu Dhabi’s budget in 2014.

While the IMF has added that the UAE would require an average oil price of US$77 per barrel by 2015 in order to balance its budget, it also revealed that Abu Dhabi holds an estimated US$773bn in its sovereign wealth fund. Despite the drop in the price of oil, the emirate is unlikely to run out of money, so reforms could be minor.

In October, the Kuwaiti government said it planned to cut subsidies for diesel fuel and kerosene, and Oman too plans to reduce subsidies from next year.

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