IMF recommends social and economic reforms in Saudi Arabia

The International Monetary Fund (IMF) has made a number of recommendations to consolidate the Saudi economy, including doubling the rate of VAT rate to ten per cent. The Washington based organisation commended the kingdom in its latest report for its introduction of VAT in January 2018 saying that “it was a landmark achievement, with revenue collections exceeding expectations.”

However the report, released yesterday on Saudi Arabia’s economic well-being, concluded that this was not enough to balance the country’s books and recommended doubling the VAT to ten per cent. IMF “staff suggested that consideration be given to raising the VAT rate from 5 to 10 percent, in consultation with the GCC.” Taxes are expected to be broadened to include sugar-sweetened beverages and e-cigarettes in December.

A VAT increase was one of several recommendations made by the monetary groups to avoid large fiscal deficits. Other measures include “further energy price reforms, increases in the expatriate levies, and allowing the 2018 cost-of-living allowances to expire at end-2019 as planned.”

READ: Saudi Arabia raises local fuel prices

The Saudi government is also advised to raise water prices to at least “cost recovery levels.” Noting that the government “wage bill has continued to increase and is high in a global context”, the IMF called for a review of the civil service including the allowances and benefits paid to staff.

The social assistance programme was highlighted as in need of reform. Saudi citizens are said to benefit from free education and healthcare, while pension systems are generous with many people retiring at around 50 years of age.

Better targeting of social assistance programmes was recommended by the monitoring group. While encouraging programmes that “adequately protect the less well-off” the report said that “better targeting” was needed to ensure fiscal savings.