Exploratory Study on the Impact of Food and Fuel Prices on Poverty in Food Import Dependent and Oil Exporting Economies: The Case of Sultanate of Oman

Oman - 1 June 2016

The drastic drop in fuel prices and the resulting fiscal constraints have compelled oil exporting countries to phase down fuel subsidies. This study with use of a simulation model developed by the World Bank has estimated the impact of increase in 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 the recent increase of fuel prices by 33% increases poverty incidence by 1%. 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 the poor household that would be adversely affected by phasing down of fuel subsidies.