How Saudi Arabia’s latest austerity measures will affect its economy – ZAWYA

How Saudi Arabia’s latest austerity measures will affect its economy – ZAWYA

Saudi Arabia's austerity measures to boost the state finances pulverised by the coronavirus pandemic and low oil prices, is expected to offset a portion of this year's revenue loss, but it will reduce consumption and add to the negative economic impact.. The world's largest oil exporter tripled its value-added tax rate to 15 percent from 5 percent in July and suspended the cost of living allowances for state workers as of June 1.. "The new fiscal austerity package announced by the Government of Saudi Arabia (A1, negative) will help offset a portion of this year's revenue loss caused by the sharp decline in oil prices and lower oil production," said Alex Perjessy, a Moody's vice president.. "The decision to triple the value-added tax rate to 15 percent could generate up to 5 percent 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," Perjessy said.. From June, the kingdom will add 1 million barrels per day (bpd) - equal to 1 percent of global supply - to the previously announced cuts..