Kuwait cuts fuel subsidies

Kuwait cuts fuel subsidies

Aug 10, 2016
2 min read
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The government of Kuwait has announced a series of fuel related subsidy reforms, including an 83 per cent increase in higher-quality ultra-premium petrol prices.

Lower octane fuels will increase by 42 per cent with effect from 1st September.

The subsidy cuts will lower current expenditures and bolster government finances dented by the downturn in global oil prices. It is also hoped that the increased prices at the pump will help to reduce the culture of wasteful overconsumption.

Oil and gas revenues still account for around 75 per cent of Kuwait’s annual budget, meaning that the country has been especially badly hit by the collapse of oil prices. Total government revenues fell by around 41 per cent in 2015

In a press briefing note, Financial ratings firm Moody’s said that the subsidy removal was a necessary step in Kuwait’s economic recovery.

“Although fiscal gains this year from subsidy reform are likely to be moderate, we expect gains to accelerate should oil prices increase because the government will review prices every three months to ensure that they move in tandem with global rates. Kuwait budgeted about $7.8 billion, or 6.4 per cent of GDP, to cover the cost of all subsidies in 2015, according to the International Monetary Fund (IMF). On top of this direct cost, the IMF estimates that the opportunity cost from low energy prices in Kuwait was 7.4 per cent of GDP in 2015.”