Saudi Arabia announced a slew of austerity measures to cope with the impact of the coronavirus pandemic and an oil-price rout, tripling its value-added tax and cutting a cost-of-living allowance 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. Overall spending for 2020 will remain close to what was planned as money saved gets re-allocated to health care and aid for businesses, Finance Minister Mohammed Al-Jadaan said in a telephone interview on Monday. Saudi shares fell the most in the Gulf while sovereign bonds rose following the announcement, with the security due 2060 leading the advance.
“These are the priorities: the health care of people and the livelihood of people,” Al-Jadaan said. “We want to make sure that we maintain our fiscal strength so that as the economy gets out of the lock-down, we are able to support the economy.”
Already under a strict curfew to contain the spread of coronavirus, the world’s largest oil exporter is facing a second crisis caused by the meltdown in global oil markets. The turmoil has slashed state revenue — most of which comes from crude — and is set to derail the kingdom’s fragile economic recovery since the last oil price rout in 2014. 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.
Also on Monday, the kingdom announced a surprise move to slash its oil output to the lowest level in 18 years as it tries to spur a recovery from the energy market crisis that’s hit its finances.
| WHAT OUR ECONOMISTS SAY… |
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| “Saudi Arabia’s economic model is broken. The government has failed to create fiscal space in recent years to counter the virus shock. Instead, it is sharply cutting spending and raising taxes at a time when the economy is experiencing unprecedented contraction. Its policy toolkit is dated, contributing to swings in growth instead of stability.”
— Ziad Daoud |