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The New Arab Staff

Saudi Arabia could benefit from a slow pace of fiscal reforms, IMF says

The institution published a new estimate last month [Getty]

Date of publication: 3 May, 2021

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Saudi Arabia tripled VAT to 15 percent in July 2020 to help its economy recover.
Fiscal adjustments by Saudi Arabia to lessen the economic impact of the Covid-19 pandemic should be pushed through at a slower pace, the International Monetary Fund (IMF) said on Monday.

The Saudi economy has suffered from the pandemic and low oil prices, which are down more than 30 percent in early 2020.

The price of crude is expected to rise by 2.1 percent this year, which shows a good progress according to the IMF but the institution expects real GDP growth to be lower than 2.9 percent.

The IMF expects the kingdom to lower its fiscal deficit to 4.2 percent of GDP in 2021 compared to 11.3 percent the previous year it also said austerity measures should be introduced at a slower pace.

"The VAT rate increase, the removal of the Cost-of-Living Allowances, the increased focus on the efficiency of capital spending, and planned further domestic energy price reforms are all important contributors to the planned fiscal adjustment and should not be reversed or delayed," said the IMF, according to Reuters.

It added that "a slower pace of adjustment could be considered this year to provide further support to the recovery".

The IMF said this could be achieved by limiting austerity measures when it comes to low-income households, particularly after Riyadh trippled value-added tax to 15 percent in July, hitting poorer families hardest.

Saudi Crown Prince Mohammad bin Salman said that the measure was temporary.

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