Abstract
The drastic drop in fuel prices and the resulting fiscal constraints have compelled oil exporting countries to phase down fuel subsidies. The government of Oman raised gas prices for industrial users by 100% in 2015 with 3% annual increase, and in early 2016 increased oil fuel prices by 33% with possibility of monthly adjustments, in future. The increase in the fuel prices resulted to an increase in domestic food prices too. The phasing down of fuel subsidies would influence poverty and household food security in Oman. In this context, the objective of the study is to quantitatively analyze the impact and sensitivity of food and fuel price changes on incidence of poverty in Oman. This study uses a simulation model developed by the World Bank that estimates the impact of increase in food and fuel prices on poverty incidence and the required fiscal allocation to neutralize the poverty incidence. The results indicate that poverty incidence is responsive to fuel price changes in Oman. It is estimated that increase of fuel prices by 33% increases poverty incidence by 1% from current baseline of 12.78%. The financial transfer that is required to neutralize poverty incidence due to increase of fuel prices by 33% is substantially lower than the savings made by phasing down fuel subsidies. The government could use the existing mechanism and institutions of social security provisions to target and provide financial transfers to poor household that would be adversely affected by phasing down of fuel subsidies.
Highlights
The surge and volatility of food and fuel prices from year 2008 to 2014 has changed its trend to decreasing food and fuel prices since 2015
The model estimated that poverty incidence at present as 12.8% and the transfer of finance required to bring down poverty incidence to 0% as about 500 OR/Year/Household and the required total financial transfer as 20.4 OR million
The simulation on the recent (2016) post fuel price increase, which was an increase of 33% of fuel price, indicated that poverty incidence has increased by about 1% from the base level
Summary
The surge and volatility of food and fuel prices from year 2008 to 2014 has changed its trend to decreasing food and fuel prices since 2015. The rate of decrease in food prices has been less than the rate of decrease in fuel prices (figure 1). Predictions (World Bank, 2016) are that fuel prices may not revert back to high prices that prevailed in 2013 (104.1 $/barrel) even by 2025 (82.6 $/barrel). This scenario of relatively high food prices to low fuel prices, would adversely impact poverty and food security in countries that are highly food import and oil export dependent, such as the Sultanate of Oman.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
