Arab governments need to replace subsidies for specific industries with financial assistance for the poor, says the director general of the Arab Monetary Fund (AMF).
The comments come as pressure grows on Middle East governments to boost financial assistance amid regional political unrest.
"We need to revisit the issue of subsidies," Dr Jassim al Mannai said in a speech yesterday at the AMF's headquarters in Abu Dhabi. "If they are not well targeted, they go to every Tom, Dick and Harry."
Subsidies on everyday staples such as petrol and bread have become an increasingly contentious issue this year after unrest in parts of the Middle East.
Bahrain, Jordan, Yemen and Syria are among countries extending price controls on items ranging from food to heating oil in an effort to ease public unhappiness about social injustices and rising consumer prices.
GCC states tend to use oil revenues to lower the cost of electricity, water and petrol for consumers. The UAE became the first GCC member to begin moving towards a gradual increase in petrol prices last year.
Economists and organisations such as the IMF have for years been urging a reform of regional subsidy systems.
"They can be an ineffective allocation of resources and a financial burden without warrant," said Dr al Mannai. "The warrant is to help the poor." He was speaking at the start of a training course of Arab financial policymakers about the need to reform public financial management.
Gosta Ljungman, an IMF economist heading the course, said one of the problems was many governments did not take long-term population challenges into account when they rolled out financial assistance measures.
Another problem with subsidies is uncertainty about how sustainable they are. For oil-importing nations such as Jordan and Syria, increasing subsidies further stretches already limited public finances.
A plentiful supply of petrodollars in the Gulf puts pressureon other resources. "It will create added stress and demand for electricity and water," said John Sfakianakis, the chief economist at Banque Saudi Fransi.
Against a backdrop of regional unrest, however, economists see little prospect of the status quo changing.
"Governments are realising that subsidies have not led to improvements in public life," said Liz Martins, a senior regional economist at HSBC. "But [in the near term] the focus will be on increasing their volume and attempts to make them more efficient rather than rewriting the system."
Regional governments also need to work to bring down high debt to GDP ratios in the Arab world, said Dr al Mannai.
"We have to revisit the issue of debt sustainability," he said. "In some parts of the Arab world the debt ratio is high and a lot of resources go to debt amortisation."
He cited Lebanon, a country with debt estimated by the IMF as standing at 137.5 per cent of GDP.
Meanwhile, the fund, based in Washington, warned last month Dubai faced "significant rollover risks" from having to repay US$31 billion (Dh113.85bn) in debt this year and next.