Saudi Arabia slashes import duty as inflation soars

 

Saudi Arabia is cutting import tariffs on food and many other items from Tuesday, the Saudi Press Agency reported, after inflation almost doubled in the six months to February.


The agency said the cabinet decided on Monday to cut duties on food products such as frozen poultry, dairy goods and vegetable oils to 5 per cent from about 20 per cent.

Levies on building materials such as paints, gypsum, electrical cables and plastic pipes will also be cut to 5 per cent, while duties on wheat products will be eliminated entirely from 25 per cent, SPA said late on Monday.

"This comes under the desire of the king to guarantee the prosperity of the people of our homeland and to address their needs in a manner that guarantees good living," Saleh Al Khelaiwi, head of the Saudi customs authority, was quoted as saying by SPA.

Like its Gulf Arab neighbours, Saudi Arabia, which pegs its riyal currency to the weak US dollar, has been struggling to contain inflation, which surged to an at least 27-year high of 8.7 per cent in February.

The kingdom, which has reiterated commitment to its dollar peg even as the US currency tumbled to record lows against the euro last month, has introduced subsidies, cost of living allowances and welfare payments help its 25 million people cope with price rises.

"There are rising inflationary pressures and they are trying to do something about it," said John Sfakianakis, Chief Economist at SABB Bank, HSBC's Saudi affiliate.

"They are signalling, 'we are not revaluing, we are going to go the other way in dealing with inflation'," he said.

SPA said the government would bear the cost of the tariff cuts, which would apply for a three-year period.

           

INFLATION PRESSURES


The customs agreement will apply to "180 items ranging from basic foods, necessary building materials and other consumer goods", the cabinet said. 

"The cabinet has agreed that the state will shoulder the difference between the duties agreed under the unified customs levy of the Gulf Cooperation Council," it added.

Most countries in the GCC, which also includes the United Arab Emirates, Kuwait, Qatar, Bahrain and Oman, are preparing for monetary union as early as 2010.

Inflation is accelerating across the world's biggest oil-exporting region as their economies surge on a five-fold rise in oil prices in the last six years, which is driving state investment in infrastructure and real estate.

About 664 products are already exempt from duties, including medicines, some food items and animal feed, SPA said.

The United Arab Emirates, where inflation hit a 19-year peak of 9.3 per cent in 2006, last month ordered a country-wide lifting of customs duties on cement and steel to stabilise real estate and construction prices. (Reuters)
 
 
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