Saudi Arabia is suspending the cost of living allowance and raising the value added tax threefold, as part of measures aimed at shoring up state finances, battered by low oil prices and a severe coronavirus-driven slowdown.
“The cost of living allowance will be suspended as of June 1, and the value added tax will be increased to 15% from 5% as of July 1,” the state news agency reported in a statement on Monday.
The world’s largest oil exporter is suffering from slumping prices, while at the same time measures to fight the new coronavirus are likely to curb the pace and scale of economic reforms launched by Crown Price Mohammed bin Salman.
The austerity measures introduced on Monday comes as spending outstripped income, pushing the kingdom into a $9 billion budget deficit in the first quarter.
A committee has been formed to study all financial benefits paid to public sector employees and contractors, and will submit recommendations within 30 days, the statement said.
In late 2015, when oil prices collapsed from record highs, the kingdom took a number of strict austerity measures, including slashing lavish bonuses, overtime payments and other benefits that were once considered routine perks in the public sector.
In a country that has no elections and where political legitimacy rests partly on distribution of oil revenue, the ability of citizens to adapt to reforms aimed at reducing oil dependence and improving self-reliance is crucial for stability.
On social media, some Saudis appeared prepared to accept austerity measures, posting pictures of, and pledging support to, Crown Prince Mohammed bin Salman who said in 2017 that the kingdom may go back to austerity measures if it passes through another critical stage.
“This crisis will pass soon, and we must stand with our leaders in these difficult days, we trust you,” said a Saudi with a twitter handle Abdullah Althaqafi.
Via Reuters
