On Monday, the Saudi government announced that it would be , from five to 15 percent, as of July, as well as suspending the cost of living allowance for government workers, due to the recession caused by coronavirus and collapse of the global energy market.
The finance minister acknowledged that such moves were "" yet "" Although the Saudi leadership, like others in the GCC, has long expressed its intentions to wean citizens off of oil wealth and implement austerity measures to decrease government outlays, the coronavirus pandemic has made this more urgent than ever.
The most recent cuts in Saudi Arabia will amount to into government coffers but will drastically change life for many Saudis, as household items will immediately become more expensive.
Notably, rhetoric about the new austerity measures is different from language used in the past, with explicit reference to the need to look to long-term benefits and the need to protect the country's fiscal stability. The last time the Saudi government attempted to cut allowances was back in September 2016, when King Salman reduced ministers' salaries by 20 percent and decreased financial allowances for public sector employees as a means of implementing austerity measures.
Nonetheless, these were following limited outcry on Twitter, with then Deputy Crown Prince Mohammed bin Salman explaining that the country's fiscal position had improved. It is clear now, that with energy demand still in the doldrums, and with additional cuts to oil output to be put in place, the situation is unlikely to change in the short term.
| Rhetoric about the new austerity measures is different from language used in the past, with explicit reference to the need to look to long-term benefit |
The government has also announced that it will decrease spending on projects associated with Vision 2030 by some . Although this will likely not affect Saudis' daily lives, since jobs will be protected and particularly given that there was considerable scepticism about the feasibility of some of the Vision's megaprojects even before the pandemic, it raises questions about the future of the Vision.
Nationalisation of the workforce is one area which will likely remain, as we see increasing numbers of and unlikely to return - a process that had begun even before coronavirus.
Still, this workforce is likely to remain concentrated in the public sector, at large cost to the government - an issue that the Vision had sought to address.
Indeed, it is difficult to imagine how the private sector's growth can be fuelled given the current situation and particularly how much private sectors in GCC states have traditionally depended on government capital and contracts for their survival. Further, household expenses will rise greatly, hurting the consumer market.
As a result, reliable public sector employment arguably may become even more important, with some two-thirds of Saudi nationals already employed by the government. Further, despite having cut the for state employees, they are still granted the monthly , which benefits around 12 million Saudis, meaning that a social safety net is still in place.
Indeed, for all the discussion of the creation of a new social contract, free healthcare and education, as well as other remaining benefits to citizens are unlikely to be changed, at least at present.
Still, rhetoric about making sacrifices for the good of the country's long-term health is indicative of the government's desire to manage expectations about what it will provide for its citizenry, particularly as and prices remain low.
Meanwhile Saudi Arabia's sovereign wealth fund, the Public Investment Fund, valued at some $320 billion, has taken the opportunity to buy assets abroad at lower prices: .
| The spending spree represents an opportunistic approach to snapping up bargains on the international market |
The spending spree represents an opportunistic approach to snapping up bargains on the international market, which will likely yield profits in the long-term. Nonetheless, such a spree could lead to questions at home, particularly as the daily lives of Saudis will change with the implementation of the higher VAT.
Further, now that citizens are no longer benefitting from Vision 2030's high-profile social events, and indeed will be less able to afford them after the implementation of the new measures, they may come to question the crown prince's ambitious vision for the country and the strategy used to realise it.
Dr Courtney Freer is a research fellow at LSE Middle East Centre.
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