Protect poorest while ending costly subsidies

Energy subsidies are enormously costly for the Arab republics, but ending them risks social unrest. The answer is to target them better to the most disadvantaged

As the economies of many Arab countries have slowed down, policymakers have increasingly looked askance at the huge cost of government subsidies for fuel and other staples. The time has surely come for targeting assistance to those who need it most, rather than giving it to everyone.

Across-the-board subsidies are a central component of the economic woes that plague some Arab republics, especially those where oil reserves are insufficient to earn the export income needed to pay the costs of cheap fuel and bread for the public.

Egypt, Yemen, Tunisia and Jordan are among the countries struggling with the problem. In Egypt, energy subsidies alone account for an astounding 20 per cent of state spending. And the country is a net importer of oil and will soon become a net importer of natural gas, which makes it vulnerable to global price fluctuations.

Everywhere, subsidised fuel, in particular, is hugely inefficient. The wealthiest households have the most vehicles, and the biggest ones; naturally they use the most petrol, and so save the most. In homes and businesses, cheap electricity and cut-rate industrial fuel encourage waste and perpetuate inefficiency. Crime makes the problem worse: experts say up to one-fifth of Egypt's subsidised fuel is siphoned off by smugglers who sell it outside the country.

Yet subsidies are easier to give than to take away. In recent years Jordan, Tunisia and Egypt have all announced subsidy reductions - and all faced widespread public protests in response. The more prosperous, too, love cheap fuel, and can use considerable political influence to protect it.

Now, as The National reported on Friday, attention is turning to other ways to support the neediest while scaling back sweeping subsidies. Egypt is aiming to increase fuel prices for industry gradually; Jordan and Tunisia are trying to use targeted subsidies.

Changes like these are welcome, even essential, but the process must be pursued with transparency and caution.

Across the Arab world, many types of reform are needed to drag economies into the 21st century. But governments acutely sensitive to popular displeasure may find themselves powerless to impose the short-term pain that is needed for long-term gain.

These changes, urgent though they are, must be designed to provide help to the neediest, must be preceded by public information campaigns, and must be rolled out incrementally.