Riyadh restores allowances, renews reform pledge

Sunday 30/04/2017
Recalibrating. A view of King Abdullah Financial District in Riyadh. (Reuters)

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.