Saudi Arabia’s finance minister has said the kingdom has approved SR100bn ($27bn) of spending cuts and will increase the rate of value-added tax (VAT) to 15 per cent.

In a statement on 11 May, Minister of Finance and acting Minister of Economy and Planning Mohammed bin Abdullah al-Jadaan said the government has acted to protect the long-term outlook for the Saudi economy as it struggles with the impact of the Covid-19 pandemic and lower oil prices.  

He said the SR100bn of spending cuts include cancelling, extending or postponing operating and capital expenditures.

For VAT, the rate will increase to 15 per cent from 5 per cent from 1 July this year.

The government has also decided to stop the cost of living allowance starting from 1 June.

A ministerial committee has also been formed to review the financial benefits given to civil employees, contractors and relevant persons who are not subject to the civil service system and work within the government’s ministries, and other bodies and institutions. The committee has been tasked with making recommendations within 30 days.

Al-Jadaan signalled that spending cuts were planned in an interview on 2 May with Saudi broadcaster Al-Arabiya TV. He said in the interview that the kingdom would need to take 'painful' measures as it faces up to the effects of the coronavirus lockdown and volatility in the world's oil markets caused by the collapse in demand for oil.