Government employees in Saudi Arabia grapple with new economic realities
Riyadh - Sweeping salary cuts among ministers and government workers, eliminating entitlements and privatising 13 ministries have rattled and deeply divided the Saudi public but economists caution the changes, while deeply affecting the middle class, are vital to the success of the government’s economic reforms.
“It means the state will depend on the people rather than the people depending on the state,” said Jean-François Seznec, a visiting associate professor at Georgetown University’s Center for Contemporary Arab Studies. “It’s a good thing but not an easy thing.”
The cuts took many Saudis by surprise. Ministers saw their salaries slashed 20% and members of the Shura Council, the legislative body, had stipends cut 15%. All government workers lost bonus payments.
However, it was the reduction in allowances that is likely to hurt middle-class government workers the most because the entitlements represented as much as 25% of their monthly income. The government eliminated many transportation allowances, reduced or dropped housing payments and special allowances, such as payments to remain up to date with computer technology and equipment.
“Most of us have a basic salary that is not very much,” said one government worker who spoke on the condition of anonymity. “Those allowances gave me a 25% boost in my salary. I’ve had it for years and depend on it as my regular income.”
The government formally announced that workers will be paid according to the Gregorian calendar instead of the Hijri calendar, which had been in use since 1932. The change will eliminate about 11 days of wages per year.
“It’s one more economic measure to balance spending,” Saudi analyst Jamal Khashoggi told Reuters recently. “Of course, people don’t like it but it’s a sign of the times. Probably the teachers and many others will be affected by it. It shows why it’s important for the private sector and Saudi [gross domestic product] GDP to diversify.”
One Saudi economist, who asked not to be identified, said the cuts were scheduled to be implemented over a 4- or 5-year period. However, the passage of the Justice Against Sponsors of Terrorism Act (JASTA), the law passed by the US Congress to allow the families of 9/11 victims to sue countries for damages, hastened the cuts because Saudi assets in the United States could be frozen during legal proceedings.
“The only good thing I see is that inflation will slow but it won’t make much of a difference because consumer spending will also slow down,” said the economist, who is based in Riyadh.
The primary concern among Saudi economists, he said, is the ripple effect the reductions will have on the private sector. Banks face exposure to commercial loan defaults if business revenue drops. He also noted that municipalities are now taxing small and medium-sized businesses based on the usage space rather than the size of exterior signage. Higher local taxes will result in spiked prices of goods.
Seznec said there are mechanisms in place to protect banks and businesses.
“If there are problems, banks will reschedule loans,” Seznec said. “Banks will not try to squeeze every person. In Saudi Arabia there is a tremendous amount of personal debt and that is not good for banks.” He said “if they can overcome it”, banks will face little exposure, adding that new bankruptcy laws recently approved by the Council of Ministers will help keep businesses operating.
The reduction in salaries and the privatisation of the ministries, including the ministries of Justice, Labour, Health, Housing and Energy, signal a forceful push by the Saudi government to make the private sector more attractive to workers.
The move will improve Saudisation by requiring civil servants to enter the private sector workforce. It will also weed out unproductive government workers because employees will be required to apply for private sector jobs that were once in the government domain. By improving Saudisation, which requires private businesses to maintain a quota of Saudi workers, expatriate employees will be replaced and return home.
About two-thirds of Saudi nationals work for government agencies and foreigners account for the vast majority of workers in the private sector. To ease spending in the public sector, where wages have become unsustainable, the government is encouraging Saudis to move to private employment.
Irfan Mohammed, an expatriate who has lived and worked in Saudi Arabia for more than 20 years, said expats in government jobs such as ambulance drivers in the public health sector would find it difficult to keep their jobs. “It will really be tough for them,” he said.