US, WASHINGTON (ORDO NEWS) — A double blow: an outbreak of coronavirus and a sharp drop in oil prices exacerbated the situation in Saudi Arabia, plunging it into the worst financial crisis in decades. He touched the whole kingdom, including private sector workers and business owners, who play a central role in Crown Prince bin Salman’s desire to reduce the economy’s dependence on oil.
The growing budget deficit posed a difficult task for the government: to try to reduce revenues, expenses and provide financial support to the Saudis, who had been in quarantine for several months. The austerity measures introduced by the government earlier this week, including a threefold increase in the value added tax, dealt a crushing blow to the generous welfare state, threatening great difficulties and possibly social unrest.
“It is very important to take extreme measures, which can be painful, but which are necessary for the financial stability of society,” said Saudi Minister of Finance Mohammed al-Jadaan.
Saudi Arabia is perhaps the only country to face harsh retribution due to a pandemic, as Jadaan and other officials have repeatedly emphasized. But the kingdom remains the largest Arab economy, so now all the possible options for how it can overcome the crisis are being carefully studied.
When the virus broke out in March, Saudi observers were preoccupied with other events, including the Crown Prince’s detention of senior members of the royal family and the oil war between Saudi Arabia and Russia, which led to a drop in oil prices and a split between the kingdom and the Trump administration.
The Saudi government quickly responded to this pandemic, it struggled to contain the spread of the virus, which has infected 40,000 people in the country today. As the outbreak of coronavirus spreads, expanding sectors of the economy, such as tourism and entertainment, have stopped.
The cost of bin Salman’s mega-projects — symbolic of his plans for social and economic transformation — has slowed. Among his most ambitious plans were the futuristic city of Neom on the Red Sea and a huge park in Riyadh, the capital of Saudi Arabia.
The government has kept salary payments in a bloated public sector, but has announced that cost-of-living allowances for civil servants will be suspended starting in June. Tens of thousands of foreign workers may lose their jobs.
But, even though Saudi leaders are calling for cost reductions, complaints have already been voiced that the crown prince’s sovereign wealth fund bought shares in the world’s largest cruise line and made a deal to take over British Newcastle football club United. “Investing is important. They bring a profit that can be used in case of crisis to reduce the deficit, ”Jadaan said.
Frank talks by the finance minister and new austerity measures showed the public that “times have changed. The future already looks different, ”said expert Karen Young.
The idea that the government is trying to communicate during a pandemic – a joint sacrifice for the service of the Saudi state – supports nationalist themes that the crown prince uses over and over again to try to rally citizens and attract the public, especially youth, to his side, Young believes.
“Together. Everyone suffers, so I can’t complain, ”says Razan, a 20-year-old Saudi saleswoman from the Japanese designer brand Muji. She no longer receives a government subsidy that provided 40% of her monthly earnings.
Yasmin Farouk, a guest official at the Carnegie Endowment for International Peace, said the government’s behavior during the pandemic was controversial: “Along with talking about a joint victim, officials have promised that Saudi Arabia will take better care of its citizens than other countries. This created a sense of security. And then it began to apply rather tough decisions, ”she said.
Safi Marrun, a 29-year-old entrepreneur, is one of many Saudis trying to navigate a rapidly changing situation. Returning to the kingdom after studying in the United States, he worked for several years in the construction company of his family, then founded LocoSonix. She sells skateboards, longboards and other sports equipment.
The time was favorable: social restrictions were relaxed, including for women. More and more residents of the kingdom were free to participate in outdoor activities, while most of his clients were women and girls.
But the economic downturn was an unexpected challenge for Marrun and his family. Even before the pandemic, his family’s construction company was forced to reduce the number of employees.
Now he is afraid that the value-added tax will triple, this will affect the family business. It will also be harder to get people to buy niche products at his store.
He survived the crisis by increasing online sales during quarantine and attracted hundreds of new subscribers to his Instagram account in an attempt to create his brand. But it will not be easy for other enterprises to adapt.
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