Business Middle East Saudi Arabia

Saudi Arabia triples VAT, cuts state allowances as crisis bites

Total impact on spending and revenue to be 100 billion riyals

Saudi Arabia announced a slew of austerity measures to cope with the fiscal impact of the coronavirus pandemic and oil price rout, tripling its value-added tax and cutting allowances for government workers.

The steps taken to shore up revenue and rationalize spending are valued at about 100 billion riyals ($26.6 billion) in total, according to the official Saudi Press Agency.

“While the measures that were taken today may be painful, they are necessary and beneficial to protect fiscal and economic stability in the short and long term,” Finance minister Mohammed Al-Jadaan said in a statement on Saudi Press Agency.

Already under a strict curfew to contain the spread of the coronavirus pandemic, the world’s largest oil exporter is facing a simultaneous crisis caused by the oil price rout and global crude production cuts to help balance the market. The price of Brent crude crashed by more than 50% in March, contributing to a record $27 billion monthly drop in the Saudi central bank’s net foreign assets.

The government announced the new austerity measures overnight, shortly after the dawn call to prayer that marks the beginning of the daily fast for the Islamic holy month of Ramadan.

  • The VAT, introduced in 2018, will be increased to 15% from 5% starting July 1
  • Beginning in June, the government will end a monthly cost-of-living allowance paid to government workers. The allowance was granted in 2018 after complaints from citizens about the financial impact of austerity measures taken during the last oil price rout.
  • Some operational and capital spending will be canceled or delayed
  • Spending will be reduced on some programs under Crown Prince Mohammed bin Salman’s “Vision 2030” economic transformation plan
  • A committee will study the salaries and benefits given by government entities outside the civil service umbrella — where employees are often paid significantly more than typical state employees — and give its recommendations within 30 days

Shortly before the measures were announced, King Salman ordered a payment of 1.85 billion riyals to be distributed to state welfare recipients to mark the occasion of Ramadan. The payments will include 1,000 riyals for each family and 500 riyals for each dependent.

Via Bloomberg

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