The Saudi Press Agency (SPA) said in a statement on Monday, it was decided to stop the cost of living allowance starting from June 2020 and also raise the value-added tax rate from 5% to 15% as of July 1st 2020.
Saudi Arabia, the world's largest oil exporter, is suffering from falling prices at the same time that measures to combat the emerging Corona Virus are likely to reduce the frequency and scale of economic reforms that It was launched by Saudi Crown Prince Mohammed bin Salman.
The austerity measures that were implemented on Monday came as spending exceeded income, causing Saudi Arabia to witness a budget deficit of nine billion dollars in the first quarter.
Finance Minister Mohamed Al-Jadaan said in the statement that the measures taken today were painful but that they are necessary to maintain financial and economic stability from a comprehensive perspective and in the medium and long term ... and exceeded the unprecedented global crisis of the Corona pandemic 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 impacted the amount of revenue other than Oil and Economic Growth.
He said these combined challenges 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 macroeconomic and public finances in the medium and long term. Thus, further reductions in expenditures must be achieved and measures in place to support the stability of non-oil revenues.
Foreign currency reserves at the Central Bank fell in March at the fastest rate in at least 20 years and the lowest level since 2011.
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 by 22 percent.
The statement said that the government canceled or postponed some items of operating and capital expenditures to a number of government agencies and reduced the credits of a number of initiatives to achieve vision and major projects for the fiscal year 2020. p>
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