Assessing Kuwaiti Energy Pricing Reforms

Manal R. Shehabi
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Manal R. Shehabi: Business School, The University of Western Australia and Oxford Institute for Energy Studies, https://www.web.uwa.edu.au/person/manalr..shehabi

No 17-08, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: From mid-2014 Kuwait has experienced a substantial drop in its petroleum export price and,consequently, government revenue, causing a severe fiscal deficit and impaired economic performance. Cutting energy subsidies has become a policy priority. In the face of widespread opposition, the government raised gasoline prices in August 2016, proclaiming such reform the key to solving economic problems; yet recent policy discussions have not addressed the mechanism of pricing reforms. The paper offers a quantification and assessment of energy pricing reform in the current low petroleum price environment via a general equilibrium model of the Kuwaiti economy that embodies the structure of its economy and its labor market, its oligopolistic industries, and external flows associated with its sovereign wealth fund. Simulations clarify the required adjustments, including the seldom discussed expatriate labor exit and the decline in oligopoly rents. While necessary, subsidy reform implies trade-offs, notably between fiscal stabilization and cost of living sustainability. The results confirm that successful implementation must be accompanied by carefully designed mitigation measures and associated microeconomic reforms.

Keywords: petroleum; price volatility; general equilibrium; subsidy, oligopoly; sovereign wealth fund; expatriate labor; Kuwait, CGE (search for similar items in EconPapers)
JEL-codes: C68 D43 D58 E24 E62 F41 H50 L13 L43 O53 Q43 (search for similar items in EconPapers)
Pages: 47
Date: 2017
New Economics Papers: this item is included in nep-ara, nep-cmp, nep-ene and nep-mac
Note: MD5 = 7c9b6ee5b6c8c074a0b98328502fe19c
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Citations: View citations in EconPapers (2)

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