Like most things in Saudi Arabia, the government pays the bill. The decades of massive crude oil flows and high oil prices allowed the Kingdom of Saud to build out a state supported economy that paid for everything from cradle to grave, including medical, education and even smart phones. Oil prices at $70 to $110 dollars per barrel as well as an appetite for consumption by the West and China meant this party would never end. Well, things have changed. The price of oil dropped to $10 dollars a barrel and even traded negative at one point since the coronavirus pandemic started. It gets worse, because the massive need for crude oil disappeared when countries shut down their economies – and this is a serious problem for Saudi Arabia.
The cost of living allowance in Saudi Arabia will be suspended in June and the value added tax or VAT will increase from 5% to 15% starting on July 1st. These are just a sample of the economic reforms launched by Crown Price Mohammed bin Salman. In addition to the challenges that have cut state revenues, the Central Bank`s foreign reserves fell in March at their fastest rate in 20 years, and to their lowest level since 2011. The Kingdom registered a $9 billion budget deficit in the first quarter of 2020. And it will get worse.