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World’s biggest energy subsidizing countries from Arab world: UNDP

18 April 2012 20:19 (UTC +04:00)

Baku-APA. A report from the UN Development Program (UNDP) on Wednesday said several of the world’ s countries with the greatest domestic energy subsidies are from the Arab world, APA reports quoting Xinhua.

"Six of the world’s 10 largest subsidizers are found in the Arab world, led by Kuwait, Saudi Arabia, and Qatar," said the report, titled Energy Subsidies in the Arab World, noting "Each of these three countries charges their populations less than a third of international prices for fuel and electricity."

The report released by UNDP’s Regional Bureau for Arab States, cited reasons why Arab countries may choose to subsidize energy in this way.

"The objectives behind such a policy range from overall welfare objectives such as expanding energy access and protecting poor households’ incomes; to economic development objectives such as fostering industrial growth and smoothing domestic consumption; and to political considerations, including the distribution of oil and natural gas rents in resource-rich countries," said the report.

While such subsidies may be seen as helping achieve some countries’ objectives, the report said, they can be a "costly and inefficient way of doing so."

"Energy subsidies distort price signals, with serious implications on efficiency and the optimal allocation of resources, " said the report. "Energy subsidies also tend to be regressive, with high-income households and industries benefiting proportionately most from low energy prices."

However, the report added, such subsidies are still an " important social safety net for the poor in many parts of the Arab world."

The authors of the report argued that due to the significance of energy subsidies as a form of safety net, changes to the subsidies should be carried out carefully.

"Therefore a critical success factor for these reforms, as seen from previous examples of countries which have reformed their energy prices, will be the ability of governments to compensate their populations for the reduction or removal of subsidies -- through well-targeted energy subsidies towards low income groups, the distribution of direct cash transfers, and/or improving and expanding their existing social safety nets," said the report.

Wednesday’s report was released as part of the Arab Human Development Report Research Paper Series, which is aimed at sharing research commissioned for the Arab Human Development Report.

The Arab Human Development Report offers data and policy suggestions on the topic of development and human progress in the Arab region.