Sunday, August 14, 2022

5 Changes in Saudi Arabia's Changing Economic Landscape

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Saudi Arabia is running out of money.

That’s a blunt but honest assessment on the current economic affairs of the Kingdom that has prompted it to make radical changes not seen in decades. As a state that heavily subsidized its citizens with various benefits, it certainly needs all the money it can get to offer perks such as:

  • Heavily subsidized gas
  • Free health care
  • Free education
  • Subsidized water and electricity
  • No income tax
  • Public pensions

Oil, which supplies up to 75% of Saudi revenue, has hovered around $32 a barrel recently, a huge disappointment from $100 in 2014. Such state prompts the government to look for other sources to augment its budget deficit of almost $100 billion. Therefore:

  1. Price of gasoline was raised by 50%. It used to cost US$0.16 (P7.56) per liter. Saudis attempting to stockpile on gas can be seen lining up on petrol stations on 4th of January before price hikes kick in. Despite the increase in price of gasoline, it is still cheaper than water.
  2. Speaking of water, the Ministry of Water and Electricity said not only will it increase tariff for water — from 4 riyals to 9 riyals per cubic meter starting Dec. 16 — bills will be issued monthly rather than quarterly to “prevent customers from being burdened with hefty bills.”
  3. Leaked internal documents indicate cost cutting has also involved those on top of the power ladder. The Saudi government has banned official purchases of cars and furniture as it restricts travel expenses. It also ordered freeze in all appointments and promotions, stop compensation payments for property, and halt any new rental agreements.
  4. Approval of infrastructure projects has also been limited. Spending on transport and infrastructure will fall 63 per cent in 2016, as the kingdom axes capital expenditures in a bid to trim 2016 deficit.
  5. Saudi Arabia plans to spend 840 billion riyals next year, a cut of 2.3 per cent against its 2015 budget allocation of 860bn riyals. It plans to run a deficit of 326bn riyals – equivalent to about 16 per cent of GDP, according to National Bank of Abu Dhabi calculations.
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