In a continuing bid to sustain development while announcing fiscal austerity measures; the Saudi government decided a cut amounting to SAR30bn in the budgets of VRPs; (the Kingdom’s Vision Realization Programs) and mega projects.
This is part of a major plan to cut major operational and capital expenditures by about SAR100bn. This is to mitigate the economic impact of the coronavirus pandemic crisis.
“Despite the reduction in spending on VRPs and major projects, their work and timeline would continue uninterrupted,” the sources emphasized.
Bold but achievable blueprint
The government identified as many as 10 programs of strategic importance to achieve the Kingdom’s Vision 2030; which is a bold but achievable blueprint for an ambitious nation.
According to the sources, the state allocated SAR177bn to strengthen the health sector. In addition to reducing the impact of the pandemic on the private sector; and not to affect disbursal of salaries of employees.
The sources expected that reviewing the allowances of government employees would bring down spending on government agencies, institutions and programs.
Decline in non-oil revenues
The non-oil exports posted a decline of 31.7 percent during the period between April 1 and 22, the sources said, while noting that the state did not resort to reducing the allowances or salaries of employees, contrary to the suggestions of many economists and expectations of foreign newspapers.
On the other hand, the government handled the crisis with wisdom and managed the situation with adjustments that neither harm the citizens nor affect the march of development.
The government has decided to increase the value-added tax (VAT) from 5 percent to 15 percent as part of finding more revenues.
The Saudi market is open and there are multiple commodity options and hence citizens can choose whatever they want in a way that suit their desires and the way they want to spend, it was pointed out.
Meanwhile, Moody’s Investors Service, one of the world’s leading rating agencies, gave a thumbs up to the fiscal measures announced by Saudi Arabia to cope with the impact of the coronavirus pandemic.
Moody’s, commenting on the new fiscal package that contained the hike in VAT; said that the measures revealed the government’s capacity to adjust to shocks.
Fiscal austerity package
“The new fiscal austerity package announced by the government of Saudi Arabia (A1, negative) today help offset a portion of this year’s revenue loss; caused by the sharp decline in oil prices and lower oil production. It also points to the government’s capacity to adjust to shocks.
“The new spending cuts; together with those already announced in March. And those approved in the 2020 budget, are equivalent to nearly 8% of GDP. Meanwhile; the decision to triple the VAT rate to 15% could generate up to 5% of GDP in extra revenue annually.
“In the near term; the VAT hike will likely dampen consumption substantially. Adding to the negative economic impact of the fall in oil prices and measures taken to contain the epidemic.” said Alex Perjessy, a Moody’s vice president.