Saudi Arabia triples taxes, cuts USD26B in costs amid pandemic

DUBAI, United Arab Emirates (AP) – Saudi Arabia announced yesterday it was tripling taxes on basic goods, raising them to 15 per cent, and cutting spending on major projects by around USD26 billion as it grapples with blows from the coronavirus pandemic and low oil prices on its economy.

Saudi citizens will also lose a bonus cost-of-living allowance that had been in place since 2018, according to the country’s Finance Minister.

Despite efforts to diversify the economy, the kingdom continues to rely heavily on oil for revenue. Brent crude now hovers around USD30 a barrel, far below the range Saudi Arabia needs to balance its budget. The kingdom has also lost revenue from the suspension of Muslim pilgrimages to the holy cities of Makkah and Madinah, which were closed to visitors due to the virus.

The new measures are the most drastic yet by a major Persian Gulf Arab oil producer since oil prices plunged by more than half in March, signalling that neighbouring countries may also seek to impose higher taxes on residents this year.

The International Monetary Fund (IMF) projects that all six energy producing Persian Gulf Arab states will be in economic recession this year. “We are facing a crisis the world has never seen the likes of in modern history, a crisis marked by uncertainty,” Saudi Finance Minister and Acting Minister of Economy and Planning Mohammed Al-Jadaan, said.

File photo shows a worker riding his bicycle at Aramco’s oil processing facility in Abqaiq, near Dammam in Saudi Arabia’s Eastern Province. PHOTO: AP

“These measures that have been undertaken today, as tough as they are, are necessary and beneficial to maintain comprehensive financial and economic stability,” he said in a statement published on the state-run Saudi Press Agency.

In the first quarter of 2020, state revenues were down 22 per cent from the same time last year, with the deficit reaching USD9 billion, or SAR34 billion.

Oil revenues specifically were down 24 per cent, compared to the same quarter last year.

To cover the budget deficit, Saudi Arabia drew USD26.8 billion from its net foreign assets in March in what economists said marked the fastest monthly contraction in more than two decades. Moody’s ratings agency said it expects Saudi foreign exchange reserves to decline below USD375 billion at the end of 2021, down from USD488 billion at the end of 2019.

Despite far-reaching decisions by Saudi Arabia to contain the virus, such as shuttering mosques for prayers nationwide and imposing curfews on major cities, the kingdom – like other countries- has struggled to curb its spread.