By Ramy Sameeh

Abu Dhabi – Mubasher: The UAE’s move to cut fuel subsidies will likely save around $29 billion annually to the state treasury, which will help control fiscal conditions and plug the expected budget deficit, said economic experts and analysts.

Such a decision will lure GCC states to follow suit, in light of continued declines in global energy prices since mid-2014, they told Mubasher exclusively.

The UAE announced last week that gasoline and diesel will be deregulated from August 1 and a new pricing policy linked to global levels will be introduced.

The UAE’s decision will have a positive impact on the economy, said Ali Al-Tawati, economic analyst and oil expert, adding that it will remove some burdens on the state budget in light of the steep declines in global oil prices.

Global crude prices have fallen by more than 50% since July, 204 till last April. Oil price are seen reaching $55 per barrel at 2015-end and $65 pb in 2016, according to Moody’s estimates.

Oil revenues in GCC states account for around 49% of GDP, as shown in the latest estimates of the International Monetary Fund.

“The decision will provide millions of dollars annually to the state treasury. It will also encourage the usage of public transport, especially as the UAE owns an integrated infrastructure in that sector, which will reduce carbon emissions,” said Al-Tawati.

He urged other GCC countries to followed suit of the UAE, but noted that this requires an upgrade of the transportation networks in countries like Saudi Arabia, Kuwait and Qatar.

Ramy Sidani, head of investment for MENA at Schröder, said deregulating fuel prices in the UAE came at a time all Gulf states are suffering the fallout of the slump in global oil prices.

He added that the UAE would save around $29 billion annual from the fuel subsidies cut, which will help it reduce the budget deficit expected to be seen for the first time in several years.

According to IMF figures, the UAE’s energy subsidies before tax reached around $12.64 billion, or 2.87% of GDP.

Moody’s said earlier that deregulating fuel price would alleviate the impact from oil volatility on state treasury, which will be positive for the country’s credit ratings.

Translated by Sayed Abdel Rahman