An Oil-Price Test for MENA Governments
In recent years, Middle Eastern and North African countries have been weaning consumers off domestic energy subsidies, while modernizing and diversifying their economies. With oil prices recovering, however, there is a risk that these countries will revert to their old wasteful spending habits.
WASHINGTON, DC – Since January 2016, when oil prices ended a sharp two-year slide, the price of crude has more than doubled. As a rule, higher prices are bad for oil-importing countries and good for oil producers. But, in the Middle East and North Africa (MENA), the recent price rebound presents a critical test for importers and producers alike. The outcome will determine the region’s future economic trajectory.
MENA countries – both energy importers and producers – have long depended on energy subsidies to provide social protection and, in the case of producers, to spread the benefits of resource wealth. According to the International Monetary Fund, the region’s total pre-tax energy subsidies amounted to nearly $240 billion in 2011 – equivalent to 22% of government revenue, and nearly half of all global energy subsidies.
Yet, in recent years – and especially since oil prices began to slide in 2014 – MENA countries have been working to wean consumers and businesses off subsidized energy, while modernizing and diversifying their economies. With oil prices having climbed to higher levels, however, there is a risk that these countries will revert to wasteful spending, raising the likelihood of spiraling debt.