Riyadh restores allowances, renews reform pledge
London- The Saudi government reversed some of its most severe austerity measures, restoring bonuses and allowances to state workers and military personnel.
Saudi King Salman bin Abdulaziz Al Saud issued royal decrees that included reinstating allowances and benefits to government employees and military staff to what they were in September 2016, before the austerity measures were implemented. A statement accompanying the decrees said the king was “keen to provide comfort to Saudi citizens.”
The decrees attributed the reinstatement of government perks to increased revenue and a decline in the kingdom’s budget deficit.
The Financial Times had earlier reported that the kingdom planned to cut projects valued in the billions of dollars to reduce the budget deficit. Sources told the publication that the Saudi government had retained a consultancy to pinpoint $13 billion-$20 billion in savings.
“The first quarter deficit was 26 billion riyals ($6.93 billion), when 54 billion riyals ($14.4 billion) was projected at the beginning of the year. This is a very excellent step towards rationalised spending,” Saudi Deputy Minister of Economy and Planning Mohammed al-Tuwaijri said in an interview on state-run TV.
With revenues from oil shrinking, resulting in the kingdom posting a budget deficit of $98 billion for 2015, the economic measures were deemed necessary to boost Saudi finances. Initial steps helped cut the deficit to $79 billion last year. The government estimates it will be $53 billion in 2017.
“A good and rational decision… outstanding!” wrote Twitter user Abdul Latif Haags. Saud al-Braik wrote: “What’s more important than the return of all allowances is the recognition of recovery from the economic crisis.”
Others were more cautious in their assessment, telling fellow citizens to learn from the experience.
“The return of allowances does not mean a return to previous spending,” wrote Ahmad al-Ghamdi on Twitter.
“A reasonable person learns a lesson and follows the rule of income – savings = expenditure,” he added.
For Saudis, who were long accustomed to generous government grants to supplement their salaries, the austerity measures were a bitter pill to swallow. Basic salaries in the government sector, in which 70% of the kingdom’s population is employed, are not particularly high but allowances for housing, transportation, computer skills and other job competencies can increase pay as much as 40%. The reductions also included a 20% pay cut for government ministers.
Despite the return of government allowances, Saudis still have to deal with current economic realities, including last year’s removal of energy and utilities subsidies and a value-added tax that is expected to be implemented in the kingdom and other Gulf Cooperation Council members in 2018.
The initial cutbacks and the reassessment of the kingdom’s economic methodology is part of its Vision 2030 initiative, which is designed to lessen Saudi Arabia’s dependency on the energy sector and diversify its economy.
Analysts say the reinstatement of perks will help push the reform plan’s agenda forward. “The government was forced to take extreme measures last year. Now they are more at ease with the fiscal situation so they are able to give something back to society,” John Sfakianakis, director of the Gulf Research Centre in Riyadh, told Reuters.
“They aim to continue the reforms, and they want to do it with society’s support,” he added.
The restoring of financial perks would make consumers better off by $13.3 billion-$21.3 billion, analysts said.