Saudi Arabia is ‘assessing all options’ to stimulate economy

Saudi Arabia is “assessing all the options” to boost its economy after taking painful measures to offset a sharp decline in oil revenue and deep economic contraction caused by restrictions to halt the spread of the coronavirus, the kingdom’s commerce minister said.

“The impact of oil prices has affected Saudi Arabia’s revenue and like any other country we have to adjust,” Commerce Minister Majid Al-Qasabi told Bloomberg TV in an interview that will be aired on Thursday. “The government is in continuous review of what is best for the people and the nation and its interests.”

An almost 40 per cent drop in Brent crude prices over the past year, combined with production cuts to drain a supply glut, helped push Saudi Arabia’s oil revenue down by 45 per cent in the second quarter from a year earlier.

In response, the government embarked on a range of austerity measures, cutting investment spending while also increasing taxes and slashing payouts to poorer families.

But the impact on citizens income has irked many. A recent broadcast of an interview with Finance Minister Mohammed Al-Jadaan was bombarded with questions about the possibility of lowering VAT, which was introduced for the first time in 2018 and tripled to 15 per cent this year, even though it was pre-recorded.

Al-Qasabi acknowledged measures like the hike in VAT would pressure people’s incomes, but said the government needed new revenue so it was not so dependent on oil.

Tripling VAT was “painful in the short-term but it was needed at the time,” he said.

Asked if the government would consider lowering the duty in future, he said it would “take actions to stimulate the economy and ensure steady growth.”

Still, the government could face a budget deficit of about 13 per cent of gross domestic product in 2020, according to the median of forecasts compiled by Bloomberg.

Finance Minister Al-Jadaan has said the kingdom will double its borrowing this year to soften the impact on the state’s reserves, which it needs to maintain above a certain level to support the kingdom’s currency peg to the US dollar.

Saudi Arabia’s economy is expected to contract 4.8 per cent in 2020 before growing by 3.2 per cent next year, according to a Bloomberg survey of 11 economists.