(Bloomberg) – The biggest economic reform since the founding of Saudi Arabia could accelerate subsidy cuts and impose more taxes, a plan to spread the load fall in crude oil prices between more accustomed to generous government population.
in outlining his vision in five-hour interview with Bloomberg news agency last week, deputy Crown prince Mohammed bin Salman said the measures would raise at least another $ 100 billion per year by 2020, and more than triplicariam the revenue out of oil and would balance the budget.
“it’s a great software package that aims to restructure some sectors that generate revenue,” said the prince in the royal complex Riad. Revenue not obtained with the oil rose 35% last year to 163.5 billion riyals ($ 44 billion), according to preliminary budget data.
It is a radical transformation for a country built with petrodollars since oil was first discovered in Saudi Arabia nearly eight decades ago.
prince Mohammed, 30, and his top aides said the administration was able to withstand the collapse of oil prices last year through a series of “rapid patches”. Although there are no plans to tax income, his policies would approach the world from the rest of the kingdom, where governments rely on taxes to finance spending.
Measures
The Prince said the authorities were considering measures such as more actions to restructure subsidies, imposing a tax on the added value and a power on rate, sugary drinks and luxury items. Another plan to increase revenue under discussion is a program similar to the US green card system for expatriates in the kingdom.
The strategy would complement a plan to sell a stake in Saudi Aramco in the bag and create the largest sovereign fund investment in the world, measures to make the dependent kingdom of income from investments than oil in twenty years.
the fund of US $ 2 trillion would be large enough to buy the four largest publicly traded companies on the planet.
the tax value will contribute about $ 10 billion a year by 2020, and the “restructuring subsidies” will generate more than $ 30 billion a year, said prince Mohammed, who appeared to be comfortable discussing technical details and numbers of its various plans.
conservative Society
previous Rulers avoided taking radical measures to diversify revenue sources by fear to provoke an uprising in one of the most conservative societies in the world where public spending, jobs and subsidies usually engraxaram the wheels of the economy.
unemployment among young people is one of the highest in the world and growth economic will slow to 1.5% this year, the worst rate since at least 2009, according to a Bloomberg survey of economists.
prince Mohammed consolidated more authority than anyone else in his position since the foundation of the kingdom in 1932. as defense minister, he heads the military.
he also manages ministries such as Finance, Oil and Economy through the Council for Economic Affairs and Development. The council, created after the accession of his father to the throne, also controls the Public Investment Fund.
Finance
The kingdom has been financing the budget deficit with the local debt sale and consuming foreign currency reserves, the third largest in the world after China and Japan. the net foreign assets fell by more than 500 billion riyals from the beginning of 2015 to 2.19 trillion riyals in February.
the government is negotiating with banks to raise about $ 10 billion through a syndicated loan, said two industry sources last month.
Although the Minister of State Mohammad bin Abdulmalik Al-Sheikh declined to confirm the details or the possible size of the transaction, he said it will be followed by the first international title in dollars of the kingdom as early as September.
“we are doing this now because in fact we do not need the money, but we want to prepare for the future and ensure that when we go to the market and we really need the money, markets, investors and financial institutions already know us, “he said.
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