More subsidy cuts expected in Saudi Arabia

Sunday 25/09/2016
A Saudi man looks at the trading board at the Tadawul Saudi Stock Exchange, in Riyadh, Saudi Arabia. (AP)

In line with new economic realities, Saudi Arabia is to introduce additional auster­ity measures as the kingdom adjusts to the fallout of low oil prices.

Subsidy cuts scheduled to take ef­fect October 2nd will affect several services that the government had subsidised by 50%, according to the Saudi daily Al-Eqtisadiah. The ser­vices are: passport renewals, driv­ing licences, residency permits for domestic workers, car registration transfers, processing traffic fines, as well as tariffs on 193 different com­modities.

According to Saleh al-Afaleq, chairman of the Shura Council’s Economic and Energy Commit­tee, the removal of the subsidies is meant to rationalise the services that had been provided at a cost to the state. He said the action had been expected, adding that any economy based on that kind of sup­port was unsustainable.

“These new cuts will have very little effect on the average Saudi citizen as the new fees apply to few services,” Afaleq said.

Bloomberg News recently re­ported that Saudi Arabia was look­ing into cancelling more than $20 billion worth of projects and slash­ing ministry budgets by 25%. The report stated that the government is looking into thousands of projects valued at about $69.3 billion, with one-third of them possibly on the chopping block. A separate plan included merging some government ministries and the eliminating of others.

In April, Saudi Arabia unveiled its Vision 2030 plan, an ambitious diversification package of economic and social policies designed to reduce the Saudi economy’s de­pendency on oil. The plan also aims to improve the transparency and efficiency of governmental bodies and empower the private sector.

The plan includes selling a stake in the world’s most valuable company, Saudi Aramco. A survey commissioned by the National newspaper in the United Arab Emir­ates indicated that 90% of Saudi ex­ecutives asked said they agreed that the proposed initial public offering would “mark a watershed moment for the region’s capital markets, providing much-needed liquidity and broadening the investor base”, with 53% “strongly agreeing”.

The kingdom hiked visa fees and traffic fines in August. In June, the Saudi cabinet approved the National Transformation Programme, which set a target of $141 billion for non-oil revenue by 2020. Public sector wages and salaries would be slashed by 40% over the same period.

Budget deficits, brought about by the significant drop in energy-sector revenues, across the Gulf Coopera­tion Council (GCC) are predicted to peak this year. The combined deficit of the six GCC countries is forecast to reach $153 billion, up by $34 billion from 2015, according to the Kuwait-based investment firm KAMCO Research.

Its report said Saudi Arabia is expected to account for $84 billion of the deficit, a slight improvement from last year’s record of $98 bil­lion. The report added that GCC’s deficit should start easing in 2017; however the collective shortfall should average about $100 billion until 2021.