Saudi Arabia removes living allowance for public sector workers

12 May 20

Saudi Arabia is set to suspend the living allowance for state employees, in a bid reduce spending amid an economic outlook hit by plunging oil prices and the coronavirus pandemic.

Finance Minister Mohammned al-Jadaan announced the allowance for workers will be suspended from 1 June. The allowance, which was introduced in 2018, pays 1,000 riyals ($267) per month to every state employee to help offset increased financial burdens including VAT and a rise in the domestic price of petrol.

The kingdom is also set to triple the rate of VAT from 5% to 15% from 1 July, as part of austerity measures to stabilise the economy. VAT was introduced two years ago in a bid to help reduce dependence on crude oil markets.

“These measures are painful but necessary to maintain financial and economic stability over the medium to long term... and to overcome the unprecedented coronavirus crisis with the least damage possible,” Jadaan said in the statement to the state news agency.

Last month, Jadaan said the country could have to borrow as much as $26bn more than planned this year, as well as draw down up to $32bn from its reserves, due to the economic impact of the pandemic. Jadaan also said the deficit could rise to up to 9% by the end of 2020.

The central bank's foreign reserves also fell in March at the fastest rate in more than 20 years, and to their lowest since 2011.

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