RIYADH: Scrabbling to raise the funds needed for wide-ranging reforms from fiscal and investment policy to education and housing initiatives, is taking the unprecedented step of tapping global bond markets and reprioritising domestic spending.
Income tax on the one-third of residents who are non-Saudis would raise a significant amount of non-oil revenue for the government, but could also make hiring expatriates more difficult. The Gulf’s income tax-free status is a key element in attracting foreigners to the region.
At a news conference in Jeddah late on Tuesday, Mr al-Assaf sought to clarify confusion over plans for expatriate taxes
The National Transformation Plan document released on Sunday referred to plans to raise income tax on foreigners, only for an official to deny the proposal at a press conference accompanying its release.
“As for residents’ tax, it is a proposal — nothing has been approved yet and it will be examined,” Mr Assaf said.
Saudi Arabia has been forced to speed up the pace of proposed fiscal and economic changes as a prolonged period of low oil prices has sparked two years of deep budget deficits.
The consequent fall in government spending has hit the economy, prompting workers to strike for late payment of wages after departments failed to pay contractors and suppliers. Economic growth is forecast to slow to 1.2 per cent of gross domestic product this year, according to the International Monetary Fund.
The NTP is a detailed road map of government initiatives which aims to reduce government spending on state salaries from 45 per cent to 40 per cent by 2020 and increase the role of the private sector in the economy from 40 per cent to 65 per cent by 2030.
Mr Assaf downplayed analysts’ scepticism that the NTP plan is overly ambitious and will fail to break the cultural and bureaucratic resistance to the deep-seated change in a country where citizens are used to generous handouts and benefits.
He told reporters that the detailed initiatives and targets underlined the seriousness of the proposal. “I say with these steps we have to be optimistic that these programmes and these plans will happen,” he said.
Mr Assaf confirmed plans for the ministry of finance to launch its debut international bond, but said its size would be determined by government needs.
Banks flew to Riyadh last week to pitch for mandates to handle the debut issuance, which they expect to start raising as much as $15bn after the holy fasting month of Ramadan ends in early July.
Some investors doubt that Riyadh will be able to kick its oil ‘addiction’, despite planned IPO
Saudi will increase debt-to-GDP ratio to 30 per cent by 2020 from around 7.7 per cent now, the NTP document says, as the government seeks to balance the budget over the next five years.
Other fundraising measures include “sin taxes” on harmful products such as tobacco and sugary drinks. The government will also save money by decreasing utility subsidies by Sar200bn by 2020, including selling water at a tariff that covers its real cost, rather than at a third of cost price.
