King Scales Back Austerity Plan That Set Saudis Grumbling (JMD quoted on Bloomberg)
King Scales Back Austerity Plan That Set Saudis Grumbling
By Glen Carey, Nadeem Hamid and Vivian Nereim
(Bloomberg) -- Saudi Arabia’s King Salman restored bonuses and
allowances for state employees, scaling back an austerity program that
generated criticism among citizens accustomed to generous state handouts.
The government said the perks canceled in September were reinstated
because higher-than-expected revenue helped to drive down the budget deficit.
Minister of State Mohammed Alsheikh said in a statement to Bloomberg that the
injection of more money was expected to stimulate economic growth, but others
said the kingdom’s rulers were responding to the discontent the cutbacks
created.
The decision “constitutes a step back in terms of forging a new social
contract that no longer offers the Saudi public cradle-to-grave welfare,” said
James M. Dorsey, a Saudi specialist and senior fellow in international studies
at Nanyang Technological University in Singapore. It suggests the government is
worried that its economic overhaul plan hasn’t been accepted “by segments of
the population who have the most to lose from diversification and streamlining
of the economy, including the bureaucracy,” he said.
In his decrees Saturday night, King Salman also pressed on with a
government shakeup that has installed his children in key positions. Prince
Abdulaziz bin Salman was named Minister of State for Energy Affairs, while
Prince Khalid bin Salman was appointed envoy to Washington. Additionally,
Ibrahim AlOmar, a former chief executive of National Shipping Co., was
appointed governor of the Saudi Arabian General Investment Authority.
Saudi Arabian stocks advanced the most this month on optimism consumer
spending will increase after King Salman’s orders. The Tadawul All Share Index
climbed as much as 1.7 percent, before paring the gain to 1 percent at the
close in Riyadh. The government has not said how much the bonuses were worth,
but an estimated two-thirds of all working Saudis are public sector employees.
Bolster Spending
The bonus cutbacks were announced in September as part of an ambitious
plan led by Deputy Crown Prince Mohammed bin Salman to repair public finances
and revamp the oil-dependent economy in an age of depressed energy
prices. Under his economic blueprint, the government seeks to reduce the
public-sector wage bill to 40 percent of spending by 2020, from 45 percent
today.
The austerity measures, combined with the drop in oil prices that
prompted them, have caused the kingdom’s worst economic slowdown since the
global financial crisis. The reinstatement of the bonuses may restore goodwill
and help to revive consumer spending and growth. Many citizens of the world’s
largest oil exporter have come to expect government largess for backing the
absolute monarchy of the Saud family.
“When the cuts were announced last year, it helped the budget deficit,”
said John Sfakianakis, director of economic research at the Gulf Research
Center. “They can let off the pressure on the salaries part now.”
Hurt Consumption
Within a short period of time, the reduced benefits hurt the economy and
consumption, and if the government continues to monitor its spending, this
policy change isn’t a step back from diversification, Sfakianakis said. “The
impact from the latest decision should be net positive for the economy over
time,” he said. “It is a confidence booster for consumption and overall efforts
they are trying to achieve.”
The International Monetary Fund expects economic growth to slow to 0.4
percent this year from 1.4 percent in 2016. The Tadawul Consumer Services Index
has dropped 15 percent this year, compared with a 4 percent-decline in the
benchmark gauge.
Many citizens have groused privately and on social media about their
reduced incomes and higher prices for gasoline, water and electricity since
subsidies were cut in late 2015. A slew of complaints last week on Twitter
included a cartoon shared by Turki Al Shalhoub, a writer with more than 70,000
followers on Twitter, that showed citizens being crushed under taxes. He
referred to Mohammed bin Salman’s Vision 2030 plan as “the vision of poverty.”
Some even called for protests, under the Twitter hashtag “mobilize on
April 21.” Declared goals were stopping the sale of Aramco shares, solving
unemployment and restoring pared-back employee allowances to former levels.
Dozens of police cars lined the road this weekend outside one designated -- but
empty -- protest site in Riyadh in an unusual show of strength.
The announcement “comes in the wake of the considerably
better-than-anticipated budgetary performance in the first quarter, which is
driven by strengthened expenditure management and higher revenue
inflows,” Minister of State Alsheikh said. “As a result, the actual
deficit for 1Q 2017 is about 50 percent of the projected deficit in the budget
due to increases on revenue side and decreases on expense side.”
The first quarter budget deficit was about 26 billion riyals ($6.9
billion), about half of the 50 billion riyals forecast, Finance Minister
Mohammed Al-Jadaan said in a statement.
Bonuses
It wasn’t immediately clear whether the decision would affect plans to
reduce the budget shortfall by 30 percent to about 200 billion riyals for the
entire year. Finance Minister Mohammed Al-Jadaan told Bloomberg on Thursday
that the government was on track to meet its target. When the bonuses were cut,
the gap was equal to 15 percent of gross domestic product.
In addition to a slowing economy, the desert kingdom is also grappling
with a war in Yemen that began in 2015 and is trying to reset ties with the U.S.
under President Donald Trump after a frosty relationship with the Obama
administration. Under the decrees announced Saturday, Saudi forces serving on
the front lines with Yemen will receive a two-month salary bonus.
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