Saudi Finance Minister Muhammad Al-Jadaan announced a new package of measures to save the country's budget from deficit, led by an increase in value-added tax and a halt in exchange for the high cost of living. Al-Jadaan said that the new measures aim to save about thirty billion dollars.
"It was decided to stop the cost of living allowance starting from next June, and to raise the value-added tax rate from 5% to 15% starting from the first of July 2020," the Saudi Press Agency said in a statement on Monday.
Saudi Arabia - the world's largest oil exporter - is suffering from falling prices while measures to combat the emerging Corona virus are likely to limit the pace and scale of economic reforms launched by Saudi Crown Prince Mohammed bin Salman.
The austerity measures that were applied today, Monday, with spending exceeding income, which made Saudi Arabia witness a budget deficit of $ 9 billion in the first quarter.
Finance Minister Mohamed Al-Jadaan said in the statement that "the measures that were taken today, even if there is pain, are necessary to maintain financial and economic stability from a comprehensive perspective and in the medium and long term ... and to overcome the unprecedented global crisis of Corona and its financial and economic repercussions with the least possible damage."
He added that "the necessary preventive measures taken to preserve the lives and safety of citizens and residents and prevent the spread of the pandemic have caused many local economic activities to stop or decrease, and this has negatively affected the volume of non-oil revenues and economic growth."
He added, "These challenges combined led to a decline in government revenues, and pressure on public finances to levels that are difficult to deal with later without harming the kingdom's macroeconomics and public finances in the medium and long term. Therefore, further reductions in expenditures must be achieved and measures to support the stability of non-oil revenues ".
Strict measures
The statement said that the government canceled or postponed "some items of operating and capital expenditures for a number of government agencies and reducing the credits of a number of initiatives to achieve the vision and major projects for the fiscal year 2020".
The statement added that "a ministerial committee has been formed to study the financial benefits that are spent for all workers and contractors ... and to raise recommendations within 30 days."
Al-Jadaan said earlier this month that "the sustainability of the public finances requires taking tough and painful measures" to face the economic downturn due to the spread of the Coruna virus and the collapse of oil prices.
Last April, the International Monetary Fund expected the economy of the kingdom, the largest in the region, to contract by 2.3%.
Foreign exchange reserves fell at the central bank in March, the fastest rate in at least 20 years, and the lowest level since 2011.
Also, oil revenues fell during the first three months of the year by 24% compared to the previous year to 34 billion dollars, bringing total revenues down 22%.