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Saudi Arabia will triple its value-added tax rate and suspend a cost-of-living allowance for state employees, the kingdom’s finance minister said on Monday, seeking to shore up finances affected by low oil prices and a slowdown driven by the coronavirus.
“The cost of living subsidy will be suspended from June 1, and the value added tax will increase to 15 percent from 5 percent from July 1,” said Finance Minister Mohammed al- Jadaan, in the statement reported by the state news agency. .
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“These measures are painful but necessary to maintain financial and economic stability in the medium and long term … and to overcome the unprecedented coronavirus crisis with the least possible damage.”
In 2018, King Salman of Saudi Arabia ordered a monthly payment of 1,000 rials ($ 267) to each state employee to compensate them for the increase in the cost of living after the government raised national gas prices and introduced the tax on value added.
About 1.5 million Saudis are employed in the government sector, according to official figures released in December.
The world’s largest oil exporter is suffering from a drop in prices, while at the same time measures to combat the new coronavirus are likely to slow down the pace and scale of economic reforms launched by Crown Prince Mohammed bin Salman (MBS).
The austerity measures being introduced come after the kingdom registered a budget deficit of $ 9 billion in the first quarter.
The finance minister said non-oil revenues were affected by the suspension and slowdown in economic activity, while spending increased due to unplanned tensions in the health sector and initiatives taken to support the economy.
“All these challenges have reduced state revenues, pressuring public finances to a level that is difficult to face in the future without affecting the general economy in the medium and long term, which requires more spending cuts and measures to support the stability of non-oil revenues, “he added.
The central bank’s foreign exchange reserves fell in March to their fastest rate in at least 20 years and to their lowest level since 2011.
Oil revenue in the first three months of the year fell 24 percent from a year earlier to $ 34 billion, with total revenue down 22 percent.
“Saudi Arabia’s economy has been under a lot of stress. This is why the government withdrew $ 23 billion from the reserve in March. This is the largest withdrawal from the reserve, ever, in the country’s history,” Ali al -Ahmed, a Saudi scholar and expert on Saudi political affairs at the Gulf Affairs Institute in Washington, DC, told Al Jazeera.
The government canceled and suspended some capital and operating expenses for some government agencies, and cut allocations for several of the initiatives and megaprojects of its Vision 2030 reform program with a total value of 100 billion riyals ($ 26.6 thousand). million), according to the statement.
In March, sources told Reuters that the government had asked state agencies to submit proposals for cuts of at least 20 percent to their budgets.
Hard times
A committee has been formed to study all financial benefits paid to public sector employees and contractors, and will present recommendations within 30 days, according to the statement.
In late 2015, when oil prices collapsed from record levels, the kingdom took a series of strict austerity measures, including cutting generous bonuses, overtime pay, and other benefits that were once considered routine benefits in the sector. public.
In a country that has no elections and where political legitimacy is based in part on the distribution of oil revenues, the ability of citizens to adapt to reforms aimed at reducing oil dependency and improving self-sufficiency is crucial for the stability.
Earlier on Monday, Saudi Aramco said it was cutting domestic gasoline prices for May, with immediate effect, with the price of 91 degrees falling to 0.67 riyals from 1.31 riyals and 95 degrees to 0.82 riyals from 1.46 per liter.
On Twitter, a social media platform favored by government supporters, many Saudis seemed prepared to accept austerity measures, posting photos of MBS and pledging their support.
“This crisis will pass soon, and we must support our leaders in these difficult days, we trust you,” said a Saudi with a Twitter name Abdullah Althaqafi.
SOURCE:
Al Jazeera and news agencies
