Saudi Arabia is to decide whether to increase domestic oil and electricity prices at the end of the month which could risk a recession, Reuters reported.
The government of Saudi Arabia is delaying its decision over energy prices in a bid to complete designing a system of cash flow to lower income households, to compensate for austerity in the Kingdom.
“There is still some discussion over who is going to be compensated and who is not,” said a government official. “The government has to consider the implications of higher taxes and ways to mitigate risks of both gross domestic product growth and the budget.”
Saudi Arabia’s dependency on oil exports has impacted the economy, in a market that has plummeted in recent times across the Middle East. Low oil prices in the Kingdom have triggered a deficit, amid reliance on oil exports.
“We in Saudi Arabia are putting a lot of emphasis on energy efficiency. We will be reforming our energy prices in due course this year” said Energy Minister Khalid A. Al-Falih in a conference in Moscow last week.
Officials indicated an increase in subsidised energy prices in mid-2017, along with water price reforms that would have saved Saudi Arabia $7.7 billion this year.
The forecast was premature, as the non-oil sector expanded only 0.6 per cent year-on-year in the second quarter, casting doubt on the International Monetary Fund’s forecast of 1.7 per cent non-oil growth this year.
A five per cent value added tax is planned to be implemented by January 2018 across Saudi Arabia, which will be a severe change for the country. Economic reforms planned for the country may delay the hike in oil prices, as officials decide whether to increase or keep energy prices the same.
Saudi Arabia’s engagement in the Yemen civil war has also taken its toll on the country’s economy and national spending.
Saudi Arabia has been leading a coalition of Arab states in Yemen since March 2015. Salman bin Abdulaziz, King of Saudi Arabia, was requested to intervene in Yemen by the internationally recognised President Abd Rabbuh Mansur Hadi to support the government and neutralise threats from the Iranian-backed Houthi group.
The sale of shares in Saudi Arabia’s national oil company Aramco may rescind delays in energy reforms, freeing up deficit in the country. Saudi Arabia envisages a bare minimum of two trillion dollars valuation for the company, although oil price figures require stability before the end of 2018 when sales go live to potential buyers.