On May 11th, 2020 the Kingdom of Saudi Arabia announced it is suspending cost of living allowance starting June and increasing VAT from 5% to 15% starting July.
Shocking news for the gulf residence, although this is expected due to the significant decline in demand for oil, a slow local economy, and an increase in government spend on health care provisions those factors are enough to make major impact on the economy and force the government to take severe measures.
The Government also announced its cutting spending on future projects and over the next 30 days, a committee will look at the financial benefits of Civil Service employees and present its findings. This means triples taxes, cutting $26B in costs to stave off a COVID-19 impact. “Saudi citizens will also lose a bonus cost-of-living allowance that had been in place since 2018, according to the country’s finance minister.
Despite efforts to diversify the economy, the kingdom continues to rely heavily on oil for revenue. Brent crude now hovers around $30 a barrel, far below the range Saudi Arabia needs to balance its budget.
The kingdom has also lost revenue from the suspension of Muslim pilgrimages to the holy cities of Mecca and Medina, which were closed to visitors due to the virus.
The new measures are the most drastic yet by a major Gulf Arab oil producer since oil prices plunged by more than half in March, signaling that neighboring countries may also seek to impose higher taxes on residents this year. Source Economic Times, May 12, 2020
Despite that UAE has announced it will not follow up KSA steps and increase VAT according to the country Ministry of Finance Source Arabian Business, May 12, 2020
The International Monetary Fund projects that all six-energy producing Gulf Arab states will be in economic recession this year.
These measures that have been undertaken today, as tough as they are, are necessary and beneficial to maintain comprehensive financial and economic stability,” Mohammed Al-Jadaan, said in a statement published on the state-run Saudi Press Agency.
In the first quarter of 2020, state revenues were down 22% from the same time last year, with the deficit reaching $9 billion, or 34 billion riyals. Oil revenues specifically were down 24%, compared to the same quarter last year.
To cover the budget deficit, Saudi Arabia drew $26.8 billion from its net foreign assets in March in what economists say marked the fastest monthly contraction in more than two decades. Moody’s ratings agency said it expects Saudi foreign exchange reserves to decline below $375 billion at the end of 2021, down from $488 billion at the end of 2019. Read more at: https://economictimes.indiatimes.com/news/
“We are facing a crisis the world has never seen the likes of in modern history, a crisis marked by uncertainty,”
Mohammed Al-Jadaan, Saudi finance minister and acting minister of economy and planning,
UAE Announced it will not take similar measures as KSA in the same day to calm its residence. The UAE Government’s Initiatives to Combat the COVID-19 Crisis the Coronavirus outbreak quickly turned into a global pandemic affecting the world’s largest economies including that of the UAE. In an effort to contain this crisis and reduce its impact on the community, the government allocated a flexible stimulus budget amounting to AED 256bn, and took exceptional measures to offset the potential damage expected due to the precautionary steps taken to curb the spread of the virus in the country. The Initiatives taken by the government to combat the coronavirus crisis have been divided as follows:
“We have adopted new systems in the banking, economic, and public sectors and provided healthy infrastructure to deal with the worst possibilities. We have a national team that is working around the clock to safeguard the health of our society and protect our economy and education system. We will pass this global crisis with confidence”. His Highness Sheikh Mohammed bin Rashid Al Maktoum Vice President and Prime Minister of UAE and Ruler of Dubai.
“Safeguarding the health and wellbeing of our land, people, and all those who make the UAE their home is our responsibility. The UAE has taken early measures to limit the spread of the virus. Our precautions are regularly upgraded, and we continuously monitor the experiences of other countries in combating the virus.” Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces.
“For 10 years, we invested in smart learning… in electronic and smart services… and in upgrading our preparedness for emergencies and disasters … Today we reap the fruits of our labor through witnessing the seamless continuation of our educational process and basic government services… and through adopting proactive measures in dealing with global health conditions” His Highness Sheikh Mohammed bin Rashid Al Maktoum Vice President and Prime Minister of UAE and Ruler of Dubai
“I would like to reassure every citizen and resident of the UAE that our country is infinitely able to supply everyone with all the food and medicine they could ever need. We are well prepared to face any challenge that arises” Sheikh Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces
“Our message to the international community: We are now stronger as a community, unified and cooperative. After this pandemic, the world needs new health, economy, and political cooperation systems. We must keep pace with events that can paralyze the world in weeks” His Highness Sheikh Mohammed bin Rashid Al Maktoum Vice President and Prime Minister of UAE and Ruler of Dubai
“Source of UAE initiatives, FCSA Report on Measures taken by UAE Government between 1st of March till 10th of April 2020.”
In our opinion, Countries has to take measures to combat the crisis we are living in from a health prospective or economy perspective. it is a matter of national security.