Saudi Arabia leads G-20 with highest $7,000 per capita fuel subsidies

Saudi Arabia's overall spending on gasoline subsidies rosesharply in the last two years, ranking first among the Group of 20 nations in terms of per capita spending.

A recently-released IMF report highlighted that the government spent about $7,000 per person, or roughly 27 per cent of economic production, on both explicit and implicit energy subsidies.

The IMF research also showed that global fossil fuel subsidies increased from 2020 to $7 trillion last year as governments took steps to safeguard consumers and companies from a price jump caused by Russia's invasion of Ukraine. It projected that reducing fossil fuel subsidies might help reduce carbon dioxide emissions, reduce air pollution fatalities, and increase government income.

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"Fossil fuels in most countries are priced incorrectly," stated Simon Black, Antung A. Liu, Ian Parry, and Nate Vernon in an IMF working paper. "Unfortunately, current prices are routinely set at levels that do not adequately reflect environmental damages and, in some cases, do not even account for supply costs."

According to the IMF, China was the largest source of subsidies in absolute terms, spending $2.2 trillion, followed by the United States and Russia. Last year, Saudi Arabia spent a total of $253 billion on subsidies.

Furthermore, the IMF has urged Saudi Arabia to move on with initiatives to reduce government subsidies and ensure the welfare of low-income households through increased and targeted social investment. Saudi gasoline is now one of the cheapest in the world as a result of its spending.

Just months before prices climbed to more than $100 per barrel, the government placed a maximum on domestic gasoline prices in 2021 to mitigate the impact of rising living costs on residents.

Last year, the IMF stated in its Article IV Consultation that the kingdom's work on subsidy reforms is "continuing unabated through planned step price increases that will lead to their elimination by 2030.

The majority of the worldwide total was made up of implicit subsidies, which the IMF characterized as undercharging for the environmental cost of fossil fuel combustion and lost tax income. Explicit subsidies, or selling fuel below supply costs, accounted for only 18 percentof the total.

(Inputs from Bloomberg)

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