Significant stimulus raises lots of question-marks about the overall strategy
Saudi authorities said they’ll spend billions to help citizens offset the impact of a value-added tax and a surge in gasoline and utility prices, a move that will help ease public discontent while highlighting the kingdom’s struggle to overhaul its economy.
King Salman, in a series of royal orders early on Saturday, restored an annual pay rise for Saudi civil servants, suspended as part of attempts to rein in a hefty public-sector wage bill.
He ordered a 5,000-riyal ($1,333) bonus for soldiers fighting in Yemen and granted Saudis working for the state an extra 1,000 riyals ($267) a month as a “cost of living” allowance for a year. The government will also pay part of newly introduced VAT.
The measures will likely be cheered by Saudis who took to social media and television to criticise surging prices and the implementation of a 5 percent VAT on a wide array of products as of January 1. Yet they also show how the kingdom’s rulers are struggling to find a balance between the need to avoid unrest and take the difficult steps needed to reduce what policy makers and economists see as an unsustainable reliance on oil revenue.
“This is a significant stimulus,” said Ziad Daoud, an economist at Bloomberg Economics in Dubai. “It’s good for 2018 growth, but raises lots of question-marks about the overall strategy.”
Some of those questions include how serious the kingdom is about making private-sector jobs more attractive to Saudis, and whether authorities are able to take “necessary painful measures despite public outcry,” Daoud said.
Finance Minister Mohammed Al-Jadaan, appearing on state television to explain the reasons behind the price increases, struggled to keep up with repeated questions over the impact on citizens. Calls for the return of annual pay increases for public-sector workers were persistently trending on social media. Two-thirds of Saudi employees work in the public sector.
It’s not the first time the kingdom has revised plans that form key parts of Crown Prince Mohammed bin Salman’s Vision 2030 plan to prepare the economy for the post-oil era.
Authorities had already announced plans to push the timeline for balancing the budget to 2023, instead of 2019 as originally envisioned, and said they’ll raise fuel prices more gradually. King Salman last year also reversed a decision to cut public-sector salaries after public complaints.
The latest handouts will cost the state more than 50 billion riyals, Saud Al-Qahtani, an adviser to the royal court, said on his Twitter account. Some officials were also urging private-sector companies to follow suit by giving Saudi employees an allowance to offset rising prices.
Saturday’s royal orders also included:
King Salman said he issued the orders after Prince Mohammed, his son and heir, explained that the recent measures “would increase the burden on some citizens,” according to the royal decree published by the official Saudi Press Agency.