The Radical Shift That May Worsen Saudi Arabia’s Economic Crisis - Bloomberg:
Saudi Arabia’s economic downturn is about to worsen. Already reeling from the slump in oil prices and lockdowns to halt the spread of the coronavirus, the kingdom has now increased taxes and cut spending.
While the government says overall expenditure will remain broadly in-line with the 1 trillion riyals ($266 billion) outlined in the 2020 budget, tripling value-added tax and cutting bureaucrats’ allowances will damage consumption and hurt the private sector that is key to Crown Prince Mohammed Bin Salman’s vision to diversify the economy away from oil.
And while raising VAT should help rein in a widening budget deficit, it will make the country less competitive than other Gulf states when it’s trying to attract more foreign investment.
“These are radical measures that underscore the gravity of the challenges facing the kingdom,” said James Reeve, group chief economist at Samba Financial Group. “The measures send a message to the markets that the authorities are prepared to make tough choices to keep the deficit within bounds. The downside is that this is a further blow to the already stricken retail sector.”
Saudi Arabia’s economic downturn is about to worsen. Already reeling from the slump in oil prices and lockdowns to halt the spread of the coronavirus, the kingdom has now increased taxes and cut spending.
While the government says overall expenditure will remain broadly in-line with the 1 trillion riyals ($266 billion) outlined in the 2020 budget, tripling value-added tax and cutting bureaucrats’ allowances will damage consumption and hurt the private sector that is key to Crown Prince Mohammed Bin Salman’s vision to diversify the economy away from oil.
And while raising VAT should help rein in a widening budget deficit, it will make the country less competitive than other Gulf states when it’s trying to attract more foreign investment.
“These are radical measures that underscore the gravity of the challenges facing the kingdom,” said James Reeve, group chief economist at Samba Financial Group. “The measures send a message to the markets that the authorities are prepared to make tough choices to keep the deficit within bounds. The downside is that this is a further blow to the already stricken retail sector.”
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