July 30, 2014 / 3:43 AM / 4 years ago

Yemen raises fuel prices as part of subsidies reform

SANAA, July 30 (Reuters) - Yemen raised fuel prices on Wednesday, oil officials told Reuters, as the impoverished country tries to cut energy subsidies to ease the burden on its budget deficit.

The second-poorest Arab nation has been trying for more than a year to secure a loan of at least $560 million from the International Monetary Fund (IMF), which is pressing for reforms such as cuts in subsidies which keep down prices of petrol and other fuels.

According to an official document circulated to petrol stations by the ministry and seen by Reuters the government raised official prices of petrol to 200 Yemeni riyals per litre and diesel to 195 riyals.

Pumps in Sanaa, which is suffering from a fuel supply crisis, sold a litre of petrol when they had it at an official, subsidised price of 125 riyals ($0.58), below the roughly 300 riyals currently charged on the black market.

The price of diesel, widely used for generating electricity, was 100 riyals per litre officially and 250 riyals on the black market.

In the long run, reducing the subsidies would be good news for the state budget. The government spent about $3 billion on subsidies last year, nearly a third of state revenue. Some of the money freed up by the reform could be used to increase fuel supplies, easing shortages which anger the public.

But the immediate impact of the reform would be to raise fuel prices for Yemeni consumers - potentially, a politically explosive step. A previous attempt by the government to cut subsidies in 2005 led to unrest that left some 20 people dead and over 300 wounded. The reform was cancelled.

More civil unrest in the country of around 25 million - where a third of the population lives on less than $2 a day - would feed into general instability which a range of anti-government forces could try to exploit, including al Qaeda-affiliated militants.

The subsidies cut is part of a clampdown by Yemen’s president on public sector spending this month, which included a feasibility review of state-owned companies and a ban on all but economy class travel for ministers.

The urgency of reform has increased in recent months as militant attacks on oil pipelines have hurt Yemen’s export earnings. Sanaa earned just $671 million from exporting crude oil in January-May, down nearly 40 percent from a year earlier.

Yemen’s finance minister told Reuters in May that the country was seeking “substantially more” than the $560 million which the IMF proposed, and that the Fund’s board was expected to finalise the deal in July. (Reporting by Mohammed Ghobari; Writing by Rania El Gamal; Editing by Maha El Dahan and Richard Pullin)

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