The oil factor in revising budget

In the wake of the steep slide in oil prices, the Lower House’s Finance Committee will have to decide how to weigh in this drop in energy cost before it takes a decision on the Cabinet’s proposed state budget for next year.

Committee members are thus calling on the Cabinet to revise its budget for 2015, taking into consideration the lower than factored price tag for energy.

Next year’s state budget adopted by the Cabinet and submitted to Parliament for approval is set at JD8.09 billion, marking a 3.2 per cent increase in expenditures over last year’s budget.

Still, the budget runs a JD644 million deficit, which is no longer tenable or sustainable.

The suggested budget takes $100 a barrel as the base price for oil, which was the cost when the Cabinet adopted the budget.

Cancelling direct cash support for some people to compensate for lifting the fuel subsidy would surely benefit the budget.

Readjusting the oil price base from its current $100 a barrel to about $60 would also constitute a big gain for the government that should be taken into account in the called-for process of adjusting the budget for next year.

The catch is in whether oil prices will stay at the current low levels.

There is no sure way of knowing whether they could slide even more or reverse course and go up instead.

It is going to be quite difficult for the government and Parliament to agree on a base cost price for oil as long as the fluctuation of oil prices is expected to continue.

Agreeing on a sort of average price — one that could be somehow safely set at $80 a barrel — would be one possibility. If the price drops more, as indeed expected by the international market, the difference can be used to reduce the deficit.

Whatever base price all stakeholders agree on, it must be carefully calculated with international expert opinion taken into
consideration.