Saudi government employees face austerity
Jeddah - Saudi government employees have received their first pay cheques since the announcement that salaries would be slashed as part of a fiscal austerity programme.
The new salaries, deposited in bank accounts at the end of October, provided Saudis — including all ministers and Shura Council members — with their first glimpse that belt-tightening was a stark, and perhaps permanent, reality.
“The economic programme will affect the lower- and middle-income people and won’t affect the wealthy,” said Assad Jawhar, an economics professor at King Abdulaziz University in Jeddah.
The salary cuts are a bitter pill for many Saudis to swallow. Basic salaries are not particularly high in the government sector but allowances for housing, transportation, computer skills and other competencies vital to performing duties can add up to 40% to the total salary package.
By eliminating allowances, some public workers saw their take-home pay reduced almost half. In some cases, Saudi workers had previous deductions of up to one-third of their basic salary to repay government overpayments. With the elimination of allowances and up to one-third in deductions from their basic pay, some employees saw their monthly income drop as much as 60%.
The Saudi middle class has been steadily shrinking and the cuts in wages among government workers will have a significant effect on the growth of middle-income breadwinners.
The salary cuts are just one avenue Deputy Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud and his advisers are pursuing to boost government coffers. It also raises the issue of whether austerity programmes work, especially when sacrifices from lower- and middle-income workers serve as the backbone of the programme.
Economists caution that Saudi Arabia’s economic woes cannot be compared to those of the European Union or the severe austerity plan that caused considerable upset in Greece. Consumer confidence, high among the desirables to produce a robust economy, does not necessarily apply to Saudi Arabia.
Charles Schmitz, professor of geography at Towson University in Baltimore, Maryland, and a specialist in Gulf economic policies, said Saudi Arabia’s austerity programme and salary cuts are painful but necessary.
“State employment in the kingdom is welfare,” he said. “The state’s bureaucracy is bloated as a means of passing the revenues from the state to society.
“The Saudis are used to a high standard of living that is based upon rents from oil, not labour productivity. The prince’s programme is to help Saudis get used to the idea of tying their level of living to their productivity. It may be hard landing for a lot of Saudis but it is a necessary one.”
While salary cuts among ministers and the Shura Council and the recent sacking of Finance minister Ibrahim al-Assaf and replacing him with Mohammed al-Jadaan have garnered attention, most of the ministries have quietly reduced the number of expatriate workers, curtailed travel to seminars and conferences and discouraged extra training at the employer’s expense.
In October, the Civil Service Ministry’s Replacement Administration rejected 478 out of 516 contract renewals for expatriate medical workers at King Saud University. The decision affects employees on the job for more than ten years and paves the way for the university to hire Saudis with postgraduate degrees.
Jawhar said the burden of the government’s programme is placed squarely on the average worker. He said spending is higher among the low- and middle-income Saudis in proportion to their monthly salaries compared to the buying habits of the wealthy.
He said a priority should be to eliminate corruption but also to ensure high-income earners contribute revenue to the government through taxation.
“They should go to the rich and target companies,” Jawhar said.
“The question is who is going to be affected negatively by the decision? During the past ten years, the middle class has been shrinking. [The programme] will affect them.”
The Saudi government is determined to eliminate entitlements to reduce the country’s $98 billion fiscal budget deficit. The International Monterey Fund is optimistic that the government can cut the deficit to 13% of the gross domestic product in 2016 and to less than 10% in 2017.
To help accomplish this, Saudi consumers have been encouraged to curb recreational activities and spend less on luxury items and even curtail how much they spend at the market.
Schmitz said he is optimistic the strategy will be successful. “Demand comes from two sources: Consumers and investors. The Saudis want to shift the demand from the consumer market to the private investment market so that there is more investment in the non-oil private sector. Investment can drive an economy just as much as consumer demand.”