Saudi Arabia takes unpopular financial measures to support economy

Monday, 11 May 2020 15:57:06 (GMT+3)   |   Istanbul
       

Saudi Arabia has decided to take additional measures in order to offset the impact of Covid-19 and low oil prices on the economy and the country’s balance sheet.

In particular, the government has announced it will increase the VAT rate from 5 percent to 15 percent starting from July 1 this year, which is expected to hit local trade, in the steel sector in particular. The allowance of SAR 1,000 per month to state employees will be cancelled starting from June. In addition, Saudi Arabia will cancel, extend or postpone some operational and capital spending for some government agencies and will reduce provisions for some initiatives from its Vision 2030 development strategy, SteelOrbis has learned.

The measures were announced following the reported budget deficit of $9 billion over three months as spending has increased mainly due to higher expenditure in the healthcare segment while the fall in oil revenues pulled down total profits by 22 percent. "These measures are painful but necessary to maintain financial and economic stability over [the] medium to long term... and overcome the unprecedented coronavirus crisis with the least damage possible," Saudi Arabia’s finance minister said in the official statement.

Local steel market players are concerned by the announced measures, saying that the VAT increase will depress business which is already subdued. In addition, lower project expenditure makes the increase in steel consumption, which has just started to revive last year after a long lull, rather questionable, SteelOrbis understands.

 


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