Saudi Arabia cuts $8 billion from Vision 2030 modernisation programme as austerity bites

Saudi Arabia cuts $8 billion from Vision 2030 modernisation programme as austerity bites
Saudi Arabia's much-hyped modernisation programme has taken a substantial funding cut as the kingdom's finances suffer from the coronavirus-enduced oil market collapse and subsequent price war.
3 min read
12 May, 2020
Vision 2030 has been the flagship project of Crown Prince Mohammed bin Salman [Getty]
Saudi Arabia is enacting biting austerity measures including cutting 30 billion riyals ($8 billion) from various modernisation programmes and construction projects that form a part of Crown Prince Mohammed bin Salman's Vision 2030, an ambitious plan aimed at diversifying its economy away from oil.

Saudi newspaper Okaz did not outline the period the spending cuts would take place, or what the total budet is, but it said that state employees would not have their salaries cut.

The news comes as Saudi authorities unveiled a 100-billion-riyal austerity drive in a bid to counter the disastrous twin blow of record low oil prices and a coronavirus-linked economic slump.

The austerity programme includes tripling value added tax (VAT) and halting monthly cost-of-living allowances for state employees, while deepening oil production cuts to prop up sagging prices.

Comment: Coronavirus could make a mirage of Saudi Arabia's Vision 2030

The steps risk stirring public resentment amid an already high cost of living and intensify scrutiny of lavish multi-billion dollar state projects and expenditure including the proposed purchase of English football club Newcastle United.

"It has been decided the cost of living allowance will be halted from June 2020 and VAT will be raised from 5 percent to 15 percent from July 1," Finance Minister Mohammed Al-Jadaan said in a statement released by the official Saudi Press Agency.

Al-Jadaan insisted the measures were necessary to shore up state finances amid a "sharp decline" in oil revenue as the coronavirus pandemic saps global demand for crude.

The government was also "cancelling, extending or postponing" expenditure for some government agencies as well as the cuts on Vision 2030 projects, he added.

Although the country has put great efforts into reducing its dependence on oil, state revenues are still largely generated by crude oil sales. With the dramatic drop in oil price since the last budget was announced in December, funding for diversification initiatives are set to take a substantial hit.

In an apparent effort to sweeten the bitter pill, state energy giant Aramco slashed domestic fuel prices by nearly half, starting from Monday.

The savings from the austerity measures are unlikely to plug the kingdom's huge budget deficit, which the Saudi Jadwa Investment group forecast would rise to a record $112 billion this year.

In another attempt to boost energy markets, the kingdom said it had asked Aramco to cut an additional one million barrels per day from June as it seeks to support prices hit by the demand-sapping pandemic.

The move - on top of last month's agreement by OPEC and its allies to slash production - will reduce the output of the world's biggest crude exporter to 7.5 million barrels per day, the lowest in nearly two decades.

Agencies contributed to this report.

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