Saudis Are Said to Plan 80% Gasoline Price Jump in January

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(Bloomberg) -- Saudi Arabia plans to raise domestic gasoline and jet fuel prices in January, part of a program to gradually eliminate energy subsidies as the kingdom seeks to overhaul its economy and balance the budget, according to a person with knowledge of the matter.

Gasoline prices are set to increase by about 80 percent, while jet fuel prices will be raised to international levels in one go, the person said, asking not to be identified because the matter isn’t public. Gasoline and other fuels such as diesel, kerosene and heavy fuel oil, will see incremental price increases over several years, the person said.

Excluding jet fuel, prices won’t reach international levels until 2023 at the earliest, and potentially by 2025. Electricity tariffs won’t be increased directly, but will rise gradually with other energy prices, the person said. The Finance Ministry, which oversees the subsidy reform program, did not immediately respond to a request for comment.

The new plan represents a slower timeline for the removal of subsidies as the government tries to offset the impact of the measures on a struggling economy. Authorities first reduced subsidies in December 2015 after years of debate as oil prices plummeted. Officials later said they would eliminate them entirely by 2020, part of Crown Prince Mohammed bin Salman’s Vision 2030 plan for the post-oil era.

Cash Transfer

The world’s biggest oil exporter is struggling to cope with low prices and spending cuts aimed to reducing a budget deficit that reached about 15 percent of gross domestic product in 2015. The economy contracted in the first two quarters this year.

Finance Minister Mohammed Al-Jadaan said in an interview in October that prices of some subsidized domestic energy products will rise to international levels later than previously seen. Authorities will not rush to balance the budget by 2019 to avoid hurting growth, he said. Next year’s budget will be announced on Dec. 19.

The Ministry of Labor and Social Development will on Tuesday announce the details of a cash transfer program, known as the Citizen’s Account, according to state television. Officials have said that the payments, intended to compensate low- and middle-income Saudis for austerity measures, will begin before the next round of subsidy cuts.

Saudi Arabia will start a stimulus package for businesses “very soon,” Fahad al-Sukait, president of local content and private sector development unit in the government, said on Tuesday at an event in Dhahran, eastern Saudi Arabia. The government wants to raise the contribution of small and medium-sized enterprises to the gross domestic product to 35 percent from a current 20 percent by 2030, he said.

©2017 Bloomberg L.P.

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