Saudi Arabia to reallocate total spending for 2020 amid crisis

Saudi Arabia is set to reallocate total spending for 2020 to other areas of development including the private sector and healthcare-related projects amid the COVID-19 outbreak, Finance Minister Mohammed Al-Jadaan said in a telephone interview with Bloomberg.

Saudi Arabia announced a slew of austerity measures to cope with the impact of the coronavirus pandemic and an oil-price rout, tripling its value-added tax and cutting a cost-of-living allowance for government workers.

Al-Jadaan said these cuts should be implemented amid the lockdown, and other pandemic precautionary measures, adding that projects and operating expenses may be delayed or trimmed.

"Overall spending for 2020 will remain close to what was planned as money saved gets reallocated to healthcare and aid for businesses. These are the priorities: the healthcare and livelihood of people,” Al-Jadaan said.

“We want to make sure that we maintain our fiscal strength so that as the economy gets out of the lockdown, we are able to support the economy,” he also stated.

Spending will also be reduced on some programs under the economic transformation plan of Crown Prince Mohammed bin Salman’s Vision 2030, he added.

Al-Jadaan revealed plans for some developments in housing and hospitality fields, indicating that some of the kingdom’s megaprojects will have their timelines extended to 2021 and 2022.

“It may not be as fast as it used to be, but they are continuing,” Al-Jadaan said.

Among the biggest moves, the country’s VAT will be increased to 15% from 5% starting July 1.

Al-Jadaan said the tax increase won’t have much impact on revenue this year because people are spending less under the curfew, but it “will help more next year and the year after as we get out of the COVID-19 crisis.”

Beginning in June, the government will also end a cost-of-living allowance paid to state workers. "The allowance was supposed to be temporary, so the government decided to cancel it," Al-Jadaan said, adding the effect is “very limited.”

“What we have seen from the announced measures are the ones that the team -- both economists and other experts -- thought would be the least damaging to the economy and the fiscal strength of the country,” he said.