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As part of its plan to gradually eliminate fuel subsidies, Saudi Arabia plans to raise domestic gasoline prices by 80 percent in January, and make them level with international prices until 2023 or possibly 2025, Bloomberg reported on Tuesday, quoting a person familiar with the Kingdom’s plans.
Jet fuel prices will also be raised in January, in a one-time hike that is expected to bring them to parity with international prices. Gas prices, diesel, kerosene, and heavy fuel oil prices will see gradual increases over several years to reach international prices, according to Bloomberg’s source.
With the exception of jet fuel prices, other energy prices as well as electricity tariffs will not reach international prices at least until 2023, and possibly by 2025.
This timetable for raising fuel prices in Saudi Arabia postpones by a few years the reaching of international price levels that has been planned earlier this year.
In September, Saudi Arabia was said to be studying a one-time hike of gasoline and jet fuel by the end of this year, while other fuel prices would be gradually increased between 2018 and 2021.
At the end of 2015, when Saudi Arabia was running a budget deficit of around 15 percent of its gross domestic product (GDP), the Kingdom started cutting its generous subsidies after the collapse of the oil prices resulted in wide budget gaps in the finances of the Middle Eastern producers.
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With the rise of the oil prices in recent months, Saudi Arabia’s budget deficit outlook has started to improve, and the budget deficit for the first nine months of this year declined by 40 percent year-on-year.
According to the International Monetary Fund (IMF), Saudi Arabia is making good progress in its Vision 2030 reform plan. Non-oil growth is expected to pick up in 2017, but overall GDP growth will be close to zero given the decline in oil production as part of the OPEC production cut deal, the IMF said.
“Growth is expected to strengthen over the medium-term as structural reforms are implemented. Risks mainly come from uncertainties about future oil prices and how ongoing reforms will impact the economy,” according to the IMF.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.