Roubini backs VAT plans and urges quicker reforms

Economist Nouriel Roubini has backed plans to introduce VAT in Saudi Arabia and praised the opening up of Saudi Aramco to outside investment. (Reuters)

SVETI STEFAN, Montenegro: Top economist Nouriel Roubini has backed plans to introduce VAT at 5 percent in Saudi Arabia.
In an exclusive interview with Arab News, the economist urged the swift implementation of economic reforms under Saudi Vision 2030 and backed the introduction of VAT and the planned opening of Saudi Aramco to outside investment.
“There are signs that maybe the government is aware that they have to accelerate the process of economic reform,” the economist told Arab News on the sidelines of the Global Citizen Forum in Sveti Stefan, Montenegro.
Roubini, whose warnings on housing prices ahead of the financial crisis earned him the moniker “Dr. Doom,” said: “Traditional groups in Saudi Arabia are against reforms but those reforms are necessary. I hope they have the political courage to do it sooner and faster because that’s important. Time is running out.”
The economist said he believed the Kingdom’s move to introduce VAT from Jan. 1, 2018 was the right decision.
Despite analyst concerns that the new tax may put pressure on already squeezed GCC economies, Roubini said VAT was a more “effective form” of taxation.
He said: “In the GCC, the revenues have traditionally been oil-based, but these revenues are both volatile and falling over the long-term.
“Therefore, introducing other forms of taxation is the right way of reforming the tax system in many parts of the Gulf.”
The introduction of taxation in Gulf economies has also raised fears that it will hit consumers in the pocket.
However Roubini said that did not have to happen if the policy was managed strategically.
“VAT is a tax and therefore somebody has to pay it, but the policy of subsidies across the GCC — electricity, health care, gasoline, education and so on — some of them are not efficient because if you want to help the poor, you need to have targeted social policies only for those who need it.
“VAT can be a progressive move as long as you make sure the poor are getting other benefits and not going to be hurt by the tax.”
The planned opening of national oil company Saudi Aramco to outside investors was also endorsed by the economist.
He said: “It’s a way to raise capital and diversify the economy so it’s a good move. Right now, there is a debate on whether to do an IPO or a private placement to save some of the underwriting costs.
“But either way, I would say bringing in transparency and openness is going to be important.”
“Bringing international capital into Aramco is going to be good for foreign investors and it’s going to be good for Saudi Arabia as a way of diversifying its financial opportunities.”
Asked if he would personally invest in Aramco stock, Roubini replied that it would depend on the price.
“The oil price is very volatile but certainly Saudi Arabia is one of the low-cost producers of oil, so even if oil prices fall lower, Saudi will remain profitable. Saudi is not going to be a displaced producer.
“But of course if oil prices are lower, their profit margins will be lower as well. As we know, one of the most unpredictable things in the global economy is the oil price. Whether I would invest in it depends whether the price is right. I don’t know what that price is going to be.”