Riyadh suspends handouts in virus-led austerity drive
Source:AFP Published: 2020/5/11 20:53:40
Saudi Arabia unveiled plans Monday to triple its Value Added Tax (VAT) and halt monthly handouts to citizens as part of a series of austerity measures amid record low oil prices and a coronavirus-led economic slump.
The austerity drive could stir public resentment amid an already high cost of living and intensify scrutiny of lavish multi-billion dollar state projects and expenditure including the proposed purchase of English football club Newcastle United.
"It has been decided the cost of living allowance will be halted from June 2020 and VAT will be raised from 5 percent to 15 percent from July 1," Finance Minister Mohammed al-Jadaan said in a statement released by the official Saudi Press Agency.
Jadaan insisted the measures were necessary to shore up state finances amid a "sharp decline" in oil revenue as the coronavirus pandemic saps global demand for crude.
The government was also "cancelling, extending or postponing" expenditure for some government agencies and cutting spending on projects introduced as part of the ambitious "Vision 2030" reform program to diversify the oil-reliant economy, the minister added.
On May 2, Jadaan warned of "painful" and "drastic" steps to deal with the double shock of the novel coronavirus and record low oil prices.
Saudi Arabia, the top crude exporter and the Arab world's biggest economy, has shut down cinemas and restaurants, halted flights, and suspended the year-round umrah pilgrimage in a bid to contain the deadly virus.
Saudi Arabia, along with other Gulf states, imposed a five percent tax on goods and services in 2018 in a bid to generate additional revenue.
The petro-state had also introduced handouts worth billions of dollars to citizens, known as the cost of living allowance, to cushion the impact of rising costs.
But the savings from the austerity measures are unlikely to plug the kingdom's huge budget deficit, which the Saudi Jadwa Investment group said would rise to a record $112 billion this year.
Riyadh has posted a budget deficit every year since the last oil price rout in 2014.
The International Monetary Fund in April projected that the Saudi economy would contract by 2.3 percent this year.
Jadaan has said he expected Riyadh could lose half of its oil income, which contributes about 70 percent of public revenues, as oil prices have fallen two-thirds since the start of the year.
He said the world's leading crude exporter would borrow close to $60 billion this year to plug the budget deficit.
The austerity measures are likely to increase criticism of the government's multibillion dollar push to host entertainment and sporting extravaganzas as part of economic diversification plans.
Newspaper headline: Saudi triples Value Added Tax
Saudi Health Minister Tawfiq Al-Rabiah (C) attends the G20 health ministers virtual meeting in Riyadh, Saudi Arabia, on April 19. Photo: Xinhua
The measures, which state media said would boost state coffers by 100 billion riyals ($26.6 billion), come as the government steps up emergency plans to slash spending to deal with the twin economic blow.The austerity drive could stir public resentment amid an already high cost of living and intensify scrutiny of lavish multi-billion dollar state projects and expenditure including the proposed purchase of English football club Newcastle United.
"It has been decided the cost of living allowance will be halted from June 2020 and VAT will be raised from 5 percent to 15 percent from July 1," Finance Minister Mohammed al-Jadaan said in a statement released by the official Saudi Press Agency.
Jadaan insisted the measures were necessary to shore up state finances amid a "sharp decline" in oil revenue as the coronavirus pandemic saps global demand for crude.
The government was also "cancelling, extending or postponing" expenditure for some government agencies and cutting spending on projects introduced as part of the ambitious "Vision 2030" reform program to diversify the oil-reliant economy, the minister added.
On May 2, Jadaan warned of "painful" and "drastic" steps to deal with the double shock of the novel coronavirus and record low oil prices.
Saudi Arabia, the top crude exporter and the Arab world's biggest economy, has shut down cinemas and restaurants, halted flights, and suspended the year-round umrah pilgrimage in a bid to contain the deadly virus.
Saudi Arabia, along with other Gulf states, imposed a five percent tax on goods and services in 2018 in a bid to generate additional revenue.
The petro-state had also introduced handouts worth billions of dollars to citizens, known as the cost of living allowance, to cushion the impact of rising costs.
But the savings from the austerity measures are unlikely to plug the kingdom's huge budget deficit, which the Saudi Jadwa Investment group said would rise to a record $112 billion this year.
Riyadh has posted a budget deficit every year since the last oil price rout in 2014.
The International Monetary Fund in April projected that the Saudi economy would contract by 2.3 percent this year.
Jadaan has said he expected Riyadh could lose half of its oil income, which contributes about 70 percent of public revenues, as oil prices have fallen two-thirds since the start of the year.
He said the world's leading crude exporter would borrow close to $60 billion this year to plug the budget deficit.
The austerity measures are likely to increase criticism of the government's multibillion dollar push to host entertainment and sporting extravaganzas as part of economic diversification plans.
Newspaper headline: Saudi triples Value Added Tax
Posted in: MID-EAST