Much-needed subsidy reforms should be accompanied by public transport investments
Prompted by lower oil prices, which are forcing the UAE government to cut its spending for the first time in more than a decade, the country is finally taking action on subsidies.
Without the reforms, the UAE would have spent $12.6bn directly on subsidies in 2015, according to the IMF.
The Middle East is home to some of the worlds biggest subsidisers.
Subsidy policies have benefitted the rich, with their higher consumption patterns, far more than poorer segments of the population. They encouraged unsustainable use of resources, and drag down the economy to the tune of billions of dollars.
Egypt and Jordan have already reformed their systems to target the most vulnerable sectors of society.
The GCC has resisted taking action, despite frequent discussion of the topic. Without reform, IMF figures suggest that subsidies will cost the GCC $175bn, when environmental and social effects are included.
A period of stable low oil prices, as we are currently experiencing, is an excellent window of opportunity to rationalise subsidy spending.
With lower global fuel prices, prices increases can be incremental. This will reduce the chance of popular discontent forcing U-turns, as Kuwait experienced when it tried to triple diesel prices overnight at the beginning of 2015.
High consumption is also driven by other government policies which have prioritised road-building over mass transit systems.
Rather than simply cutting spending, the savings should be redirected towards continued investment in public transport networks. To seriously tackle rising rates of domestic fuel consumption, GCC residents need a viable alternative to using their cars.
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