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Tue 7 May 2013 12:55 PM

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Saudi subsidies 'distorting' economy, says minister

Economy and Planning chief says gov't is trying to address issue of handouts to citizens

Saudi subsidies 'distorting' economy, says minister

Saudi Arabian government subsidies, particularly for fuel, are "increasingly distorting" the economy and the government is trying to address the issue, Economy and Planning Minister Mohammed al-Jasser said on Tuesday.

Jasser was speaking at a financial conference in the Saudi capital. He did not give details of how the government would handle the problem, or indicate whether his comments meant any new initiative by authorities.

"Rationalisation of subsidies, particularly on fuels for non-targetted participants", is a big factor hindering productivity, he said, in an apparent reference to criticism that the subsidy system can be wasteful by helping people other than the poorest sections of the population.

"This has become an increasingly important issue as these subsidies have become increasingly distorting to our economy. This is something we are trying to address."

Any changes to the subsidy system could be politically difficult in Saudi Arabia, where citizens expect handouts from the government and much industry is built on ultra-cheap industrial gas prices.

A rise in the domestic natural gas price has been talked about for years, but there is no clear sign that it will happen.

Jasser said Saudi Arabia should also resolve imbalances in its labour market, including the low level of private-sector employment among Saudi citizens, particularly women.

He said it was important for the country to diversify its economic base and develop more medium-sized companies.

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Lawrence 6 years ago

So when you give gifts to the people, they expect more in return. The only way to wean the Saudis off this expectation is to means test those getting the gifts. If the purpose is to reduce the poverty cases, then you have to know what each person makes and what their wealth is. Those that have the most will not get the gifts, and those that don't have much will get something. But then the poor get lazy because they get gifts as a reward for their poverty.

Just stop it. Put the money in a trust that can't be touched for the day when the oil is all gone.