Saudi energy minister: Oil market would balance even without cuts

May 11: Saudi Arabia will triple its value-added tax rate and suspend a cost of living allowance for state workers, it said on Monday, seeking to shield finances hit by low oil prices and a slump in demand for its lifeline export worsened by the new coronavirus.

Historic oil output cuts agreed by Riyadh and other major producers have given only limited support to prices after they sank on oversupply caused by a war for petroleum market share between the kingdom and its fellow oil titan Russia.

Saudi Arabia, the world's largest oil exporter, is also being hit hard by measures to fight the new coronavirus, which are likely to curb the pace and scale of economic reforms launched by Crown Prince Mohammed bin Salman.

"The cost of living allowance will be suspended as of June 1, and the value added tax will be increased to 15% from 5% as of July 1," Finance Minister Mohammed al-Jadaan said in a statement reported by the state news agency. "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."

The austerity measures come after the kingdom posted a $9 billion budget deficit in the first quarter.

The minister said non-oil revenues were affected by the suspension and decline in economic activity, while spending had risen due to unplanned strains on the healthcare sector and the initiatives taken to support the economy.

"All these challenges have cut state revenues, pressured public finances to a level that is hard to deal with going forward without affecting the overall economy in the medium to long term, which requires more spending cuts and measures to support non-oil revenues stability," he added.

The government has cancelled and put on hold some operating and capital expenditures for some government agencies, and cut allocations for some reform initiatives and projects worth a total 100 billion riyals ($26.6 billion), the statement said.

Central bank foreign reserves fell in March at their fastest rate in at least 20 years and to their lowest since 2011, while oil revenues in the first three months of the year fell 24% from a year earlier to $34 billion, pulling total revenues down 22%.

"The reforms are positive from a fiscal side as greater adjustment is essential. However, the tripling of VAT is unlikely to help that much in 2020 revenue wise with the expected fall in consumption," said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

She said she kept unchanged her deficit forecast of 16.3% of GDP for this year, which already factors in a greater than previously announced spending cut.

About 1.5 million Saudis are employed in the government sector, according to official figures released in December.

In 2018, Saudi Arabia's King Salman ordered a monthly payment of 1,000 riyals ($267) to every state employee to compensate them for the rising living costs after the government hiked domestic gas prices and introduced value-added tax.

DIFFICULT TIMES

A committee has been formed to study all financial benefits paid to public sector employees and contractors, and will submit recommendations within 30 days, the statement said.

In late 2015, when oil prices fell from record highs, the kingdom slashed lavish bonuses, overtime payments and other benefits once considered routine perks in the public sector.

In a country without elections and with political legitimacy resting partly on distribution of oil revenue, the ability of citizens to adapt to such reforms is crucial for stability.

"Tripling the VAT will test the limits of the balance between revenues and consumption as the economy dives into a deep recession. The move will impact consumption and could also lower the expected revenues," said John Sfakianakis, a Gulf expert at the University of Cambridge.

"These are pro-austerity and pro-revenue moves rather than pro-growth ones," he said.

Hasnain Malik, head of equity strategy at Tellimer, said the VAT rise could bring about $24-$26.5 billion in additional non-oil fiscal revenue. The rise would hit consumer spending further but was a needed step towards fiscal sustainability, he said.

Dubai, June 30: The United Arab Emirates is all set to reopen mosques and other places of worship at 30 per cent capacity from July 1.

However, Friday prayers will remain suspended in the country, said Saif Al Dhaheri, Spokesperson for the National Crisis & Emergency Management Authority (NCEMA) during a virtual press briefing on Monday.

The official said certain mosques in industrial areas, labor residential areas, shopping malls and public parks will remain closed until further notice.

He said health authorities already conducted Covid-19 tests for Imams and workers serving at the mosque to ensure health and safety of the worshippers.

Al Dhaheri also spelt out guidelines that worship centres have to follow to welcome worshippers.

A distance of three metres should be observed between each worshippers and no handshakes are allowed. Worshippers will have to perform ablutions at home. People should bring their own personal copies of Holy Quran or read from digital copies. It is also mandatory for all worshippers to download and activate contract tracing app AlHosn.

"We urge the public to cooperate by following precautionary measures including social distancing. Children under 12 years old, the elderly as well as individuals with chronic diseases should avoid going to mosques," said the official.

The UAE first announced the suspension of public prayers in all places of worship on March 16, which was extended until further notice on April 9.

As Khaleej Times reported, places of worship had been preparing to reopen since the last few weeks by sanitizing parking lots and outdoor areas, entrances, main prayer halls and ablution areas.

The spokesperson also announced that the Private and commercial boat trips and water sports will be allowed to operate at reduced capacity of 50 per cent but by following precautionary measures.

The total number of recovered cases of Coronavirus (Covid-19) in the UAE has reached 37,076 with 665 cases recovered today after receiving treatment. Since the beginning of June, UAE has had a daily recovery average of 660 cases, said Dr. Amna Al Shamsi, Spokesperson for the UAE government.

Guidelines

1. Maintain a distance of 3 metres between worshippers.

2. No handshakes allowed.

3. Ablutions must be performed at home.

4. To read the Holy Quran, worshippers must bring their own copies.

5. All worshippers must download and activate contact tracing app AlHosn

6. People in vulnerable categories like those with chronic diseases and the elderly must not visit the mosques.

Riyadh, Jul 16: Prince Abdul Aziz bin Saud bin Naif, minister of interior and chairman of the Hajj Supreme Committee, chaired a virtual meeting on Wednesday with the heads of  security agencies and officials in charge of this year’s Hajj season.

During the meeting, the minister and security officials discussed organizational issues related to Hajj, including preventive and precautionary steps related to fighting the coronavirus disease, procedures related to pilgrims commuting to the holy sites, and mechanisms to facilitate performing the Hajj rituals.

Prince Abdul Aziz confirmed abiding by the directives of King Salman and Crown Prince Mohammed bin Salman to take all precautions to preserve the safety of the pilgrims, and facilitate their performance of their Hajj rituals, according to the highest health standards to contain the new coronavirus pandemic.

Saudi Arabia has decided to allow only a limited number of domestic pilgrims to perform Hajj this year in the wake of the COVID-19 outbreak.

Only those expatriates between the ages of 20 and 50 who are not suffering from any chronic diseases can apply for the pilgrimage.

Earlier, the Ministry of Hajj and Umrah said that requests from people of 160 nationalities in the Kingdom have been screened electronically to select who will perform Hajj this year.

Of the pilgrims who will receive approval, 70 percent will be non-Saudis residing in the Kingdom and the remaining 30 percent will be Saudi citizens.

Meanwhile, the Ministry of Interior said that anyone found entering the sites of Hajj (Mina, Muzdalifah and Arafat) without a permit from July 18 till the end of Dhu Al-Hijjah 12 will be issued with a fine of SR10,000 ($2,600).

The fine will be doubled if the offence is repeated. Security personnel will be posted on roads leading to the holy sites to ensure that anyone who breaks the law will be stopped and fined.

Around 2.5 million foreign and domestic pilgrims performed Hajj last year.