Saudi reform plan to be paid for by other spending cuts - Metro US

Saudi reform plan to be paid for by other spending cuts

By Rania El Gamal, Reem Shamseddine and William Maclean

JEDDAH, Saudi Arabia (Reuters) – Saudi Arabia will pay for parts of its $72 billion five-year economic reform plan by making efficiency savings and cutting spending on existing projects, Finance Minister Ibrahim Alassaf said on Tuesday.

Plunging oil prices since mid-2014 have placed great stress on Saudi Arabia’s finances, causing a big budget deficit last year and forcing it to seek new sources of income, including taxes and other fees, and to make extensive spending cuts. The government aims to balance its budget by 2020, Alassaf said.

On Monday, the government published a five-year National Transformation Plan, part of a wider set of reforms launched in April as “Vision 2030”.

The plan, which sets targets for government agencies and includes spending on new initiatives in housing, healthcare, mining and renewable energy, will cost an estimated 270 billion riyals ($72 billion) to implement.

Asked how the government could finance these projects while shrinking the budget deficit, Alassaf said they would take priority over other spending.

“Part of it will be made available from cancelled projects or projects that were downsized, and part of it will be made available from revenues that will rise — oil and non-oil revenues.” Efficiency gains would also help to fund the reform plan, he added.

Alassaf backtracked from an initiative listed in Monday’s plan to impose income tax on foreign residents, who make up about a third of the kingdom’s 30 million inhabitants.

Saudi Arabia is considering a proposal to tax expatriates, Alassaf said, but no decision has yet been made. Such a move could help raise new revenues and encourage the hiring of Saudi nationals by raising the cost of employing foreigners.

“There will be no tax on citizens. As for residents’ tax, it is a proposal, nothing has been approved yet and it will be examined,” Finance Minister Ibrahim Alassaf said in a panel discussion in Jeddah to discuss the reform plans.


The ambitious scale of the reforms aimed at reducing the economy’s dependence on oil has caused some scepticism among economists and analysts, but Alassaf said the detail of the proposals showed the Vision was workable. “I say with these steps we have to be optimistic that these programmes and these plans will happen,” he said.

The world’s top oil exporter has for decades relied on a huge foreign workforce, in jobs ranging from top-level executive positions to manual labour, attracting them to live in such a conservative country in part by offering untaxed salaries.

But rapid population growth and declining oil income have made established economic policies increasingly unaffordable and it wants to move more of its citizens into private sector jobs.

Labour Minister Mufrej al-Haqbani said there was no strategic target to do this by reducing the number of expatriates, adding that foreign workers were an important part of the kingdom’s economy.

Saudi Arabia has already promised to introduce value-added tax and a so-called “sin tax” on sugary drinks and cigarettes. It has also started reducing lavish energy and water subsidies.

Introducing taxes and cutting subsidies are politically difficult for the ruling Al Saud family to impose because in the absence of elections, their legitimacy is based in part upon distributing oil wealth to citizens as jobs and social benefits.

Last month the International Monetary Fund said Saudi Arabia’s reform plans were “appropriately bold and far reaching”. It predicted the Saudi budget deficit would this year amount to 14 percent of gross domestic product compared to 16 percent last year.

(Additional reporting by Sami Aboudi and Ali Abdellati; Writing by Andrew Torchia and Angus McDowall; Editing by Catherine Evans)

More from our Sister Sites