Nearly all of the MENE countries provide generous universal subsides on

essential googds such as water, electricity, fuel, and food. The most common
policy provision is to create a price ceiling, making goods and services more
affordable to all households. For resource-rich countries in particular, consumer
subsidies and transfers are one of the most formidable mechanisms through which
these countries attempt to transfer oil wealth that accrues initially to the
government. But, like most safety net policies in the region, subsidies are
untargeted, highly regressive, and drain public resources from those most in need.
Moreover, as a result of shifts in demographic trends ( population growth ) and
depleting oil reserves, estimates indicate that it will become increasingly difficult
for these countries to support the demands for high living standards for future
generation. As a result of the dramatic fall in oil price during the 1990s, many
countries in the region were forced to take on increasingly high levels of debt in
an effort to maintain subsidies.

In 2010, nearly 25% of Kuwait’s budget is allocated toward public subsidies and
transfers. In 2004, Iran spent only 2% of GDP on subsidies for welfare and social
security, and both Qatar and Saudi Arabia spent less that 1% of total expenditures
on social services (subsidies). Similarly, while it is estimated that Syria’s fuel
subsides could grow to be 14.5% of GDP, it allocated only 1.1% of GDP to social
assistance programs (including its pension system). Yemen currently spends
neatly 5% of GDP on subsides-equivalent to its expenditures on health.

In the casa of subsides, the price of domestically produced commercial goods

(e.g.energy) is set considerably below market levels. The leakage rate for Iran’s
fuel subsidy-that is, the proportion of the subsidy transterred to the economically
more advantaged is 94% in that nation’s urban areas and 89% in its rural areas.

More recently, authorities in Iran instituted reforms to the fuel subsidies in an

attempt to reduce the fiscal burden and the environmental degradation caused by
overconsumption . The program offers a ‘’smart card’’ to all car owners, fixing
the subsidized fuel allowance and forcing consumers to pay market prices when
consumption exceeds the amount rationed. Moreover, economic infficies
associated with high administrative costs and leakages to the economically more
advantaged could be mitigated if the public was simply provided with cash
transfers and gasoline prices were raised to prevailing world market prices.