“How the Middle East and North Africa Can Benefit from Low Oil Prices” (Shanta Devarajan, Future Development)
“The sharp drop in oil prices starting in mid-2014 is changing this picture. Almost every oil-exporting country is cutting subsidies in fuel, electricity, gas, and water. The United Arab Emirates has essentially eliminated fuel subsidies. Many are cutting public spending and some, like Algeria, are freezing public-sector hiring. Morocco and several GCC countries have introduced energy-efficiency improvements, lowering carbon emissions. Oil importers such as Morocco, Egypt, and Jordan, who started reforming subsidies in 2014, are shifting from a fixed domestic price of fuel to one that is tied to the world price. In short, low oil prices are inducing substantial policy changes in MENA that will help the region overcome many of the problems it has been plagued with for a while. To be sure, these policy changes are only the beginning. To benefit even more from low oil prices, the countries in the region will need to move on at least three fronts: (i) substantial civil service reform, so the public sector is seen as accountable to citizens, which will in turn make citizens more comfortable with paying higher prices for public services; (ii) the adoption of fiscal rules that will permit smoothing of consumption through the inevitable price shocks; and (iii) for the oil exporters, consider more efficient ways of distributing oil revenues to citizens, possibly including the use of lump-sum transfers.”
“The sharp drop in oil prices starting in mid-2014 is changing this picture. Almost every oil-exporting country is cutting subsidies in fuel, electricity, gas, and water. The United Arab Emirates has essentially eliminated fuel subsidies. Many are cutting public spending and some, like Algeria, are freezing public-sector hiring. Morocco and several GCC countries have introduced energy-efficiency improvements, lowering carbon emissions. Oil importers such as Morocco, Egypt, and Jordan, who started reforming subsidies in 2014, are shifting from a fixed domestic price of fuel to one that is tied to the world price. In short, low oil prices are inducing substantial policy changes in MENA that will help the region overcome many of the problems it has been plagued with for a while. To be sure, these policy changes are only the beginning. To benefit even more from low oil prices, the countries in the region will need to move on at least three fronts: (i) substantial civil service reform, so the public sector is seen as accountable to citizens, which will in turn make citizens more comfortable with paying higher prices for public services; (ii) the adoption of fiscal rules that will permit smoothing of consumption through the inevitable price shocks; and (iii) for the oil exporters, consider more efficient ways of distributing oil revenues to citizens, possibly including the use of lump-sum transfers.”
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