World Bank: Gulf States Spend US$160bn on Fuel Subsidies Annually

TEMPO.CO, Jakarta - An official of the World Bank has claimed that the Gulf States - who churns out around one-fifth of the world's crude oil supply - spends more than US$160 billion in energy subsidies annualy, on Tuesday, November 3, 2014.

"Gulf States spend around 10 percent of the Gross Domestic Products (GDP) annually for energy subsidies - for example, on electricity and fuel - which amounts to around US$160 billion every year," said Shantayanan Devarajan, the chief economist for the World Bank's Middle East and North African division, as quoted by AFP.

Estimates released in late 2013 by the International Monetary Fund (IMF) suggest that Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE) - which collectively forms the Gulf Cooperation Council or GCC - has a combined GDP of US$1.64 trillion. Saudi Arabia, as the world's leading exporter of crude oil, accounts for half of the annual subsidies spent by GCC states.

"GCC members, as well as other Middle Eastern and North African countries need to start to cut back on fuel subsidies in order to prevent problems associated with bloated subsidies from happening," said Devarajan during a press conference in Kuwait regarding a recent World Bank report on subsidies.

The report stated that Middle East and North Africa - which is home to 5.5 percent of the world's population, and generates 3.3 percent of the global GDP - disproportionately contributes to 48 percent of the total amount paid for subsidies globally.

The amount is expected to exceed US$250 billion annually if the non-GCC countries are brought into the picture - which includes major oil exporters such as Iraq, Iran, and Algeria, who are known to spend more than 10 percent of their GDP on energy subsidies.

Another notable example is Egypt, whose commitment to fuel subsidies outweigh its investment on healthcare by a ratio of 7 to 1, says the report.

"These subsidies eat up the budgetary space for investments in healthcare and education - not to mention that subsidies may cause public debt to balloon," stated the report, which added that these subsidies are often misdirected and tend to be for the benefit of those who do not need to be subsidised in the first place.

"Middle East and North Africa is plagued by low growth, high unemployment, severe congestions and pollution issues [...] and subsidies directly contribute to these maladies. Reform should be on the top of their agenda," finished the report.

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