Restored Saudi state perks may avert recession, help economic reforms

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Saud Arabia’s King Salman bin Abdulaziz’s new royal decrees on Saturday night included an important domestic fiscal policy to restore cuts to financial allowances for civil servants and military personnel.

Financial observers see this decision as helping the kingdom avoid recession this year while smoothing the path toward economic reforms.

It was in last September that the government had reduced financial perks for employees in the public sector. The move was intended to curb a budget deficit caused by low oil prices.

Riyadh has forecast a deficit of 198 billion riyals in 2017 and aims to eliminate the gap by 2020. Deputy Economy Minister Mohammed al-Tuwaijri, who spoke to Al Arabiya News Channel following news of the decrees, said restoring the allowances was possible because Riyadh had made faster-than-expected progress in cutting its deficit.

The perks that have been restored include housing, vacation, and sickness allowances plus monthly bonuses for some state and military workers.

Analysts estimate that restoring the perks would put around 50 billion to 80 billion riyals ($13.3 billion to $21.3 billion) annually in consumers’ pockets.

Restored payments

Saudi Finance Minister Mohammed al-Jadaan, who also spoke to Al Arabiya News Channel on Saturday night, said restored payments would start by the end of May, just before Ramadan.

Analysts say canceling a major austerity policy does not necessarily signal change in Riyadh’s determination to eliminate its deficit. Instead, it may be intended to smoothen the implementation of an economic reform program announced last year by Deputy Crown Prince Mohammed bin Salman.

That reform includes new taxes, domestic fuel price hikes, the transfer of much of the burden of development projects to the private sector, and the sale of a stake in national oil giant Saudi Aramco.

By showing it is sensitive to the public welfare and is looking for ways to share the financial benefits of reforms with society, the government may now be able to push ahead with its program.

“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,” said John Sfakianakis, director of the Gulf Research Centre in Riyadh to Reuters.

“They aim to continue the reforms, and they want to do it with society’s support.”

However, the boost to consumer spending from the restored public will eventually be offset by new austerity measures.

A 1.4 percent rise in the Saudi stock index on Sunday, led by retailing companies, showed investors expect a boost to consumer spending.

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