Money runs out: Saudi Arabia enters austerity mode

US, WASHINGTON (ORDO NEWS) — Saudi Arabia has money problems. The government announced a reduction in government spending by $ 26.6 billion.

The measure includes the suspension of living expenses, as well as a three-fold increase in the value added tax, which should, according to the plan, strengthen public finances affected by falling prices and oil demand.

“The subsistence allowance will be suspended from June 1, and the value added tax will be increased from 5% to 15% from July 1,” said the Minister of Finance of Saudi Arabia.

Other measures include the cancellation or suspension of certain operating and capital expenses for a number of government agencies and the reduction of loans planned for some government initiatives, including the Vision 2030 project.

Some experts predict that soon Saudi Arabia may even face a powerful financial crisis: the country’s reserves are depleted. In March, gold reserves fell to a record $ 27 billion.

According to Al Jazeera, in 2014, when oil prices began to fall, the kingdom’s reserves amounted to $ 375 billion, and after three years it fell by almost a third, and all this money went to finance the budget deficit. Now they are $ 473 billion.

All this puts pressure on the rial, which is tied to the dollar, but sooner or later it can be sent for free swimming. However, while the annual forward contracts have not yet reached their highs achieved in 2016.


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