Saudi Arabia cuts public sector bonuses

Posted on September 27, 2016


Saudi Arabia has cut public sector bonuses and benefits for the first time since the collapse in oil prices, in a move that underlines the depth of the fiscal crisis facing the kingdom.

Bonuses and allowances for public sector workers were cancelled and amended in a series of royal decrees issued late on Monday.

    Applying austerity measures to the large public sector is a politically sensitive move forced by the gaping hole in public finances and deterioration across the broader economy, as the world’s biggest oil exporter grapples with the sustained slump in oil prices.

    Saudis have become accustomed to lavish salaries and generous perks associated with the state sector, which employs around two-thirds of working nationals.

    The royal decree also ordered ministerial salaries to be reduced by 20 per cent and pay for members of the appointed consultative council be cut by 15 per cent.

    The new rules, which come into force next month, apply to all public sector workers, both Saudis and expats, as well as the military. Soldiers serving in Yemen, where Saudi Arabia is leading a coalition fighting Houthi forces in that country’s conflict, are exempt from the cuts.

    Some workers criticised the announcement, which came a few days after the country’s national day celebrations.

    One state employee said colleagues were complaining about the timing, while others “wondered about any cuts to royal salaries”.

    The announcement did not address whether similar austerity measures would be imposed on the generous bursaries granted to many members of the extended al-Saud ruling family.

    The National Transformation Plan published in June said the government planned to trim public sector wages as a proportion of the budget to 40 per cent by 2020 from its current 45 per cent, or a decrease in salaries from 480bn Saudi riyals ($128bn) to Sar456bn by 2020.

    To rein in this year’s expected budget deficit of 13 per cent of gross domestic product, Riyadh has been burning through its foreign reserves and borrowing from local financial institutions.

    The finance ministry is expected to launch an international bond programme as early as next month, seeking to raise up to $15bn.

    Enjoying low debt levels, the government may also choose to return to global debt markets next year, bankers say.

    The broader economy has been reeling from the oil slowdown, with the International Monetary Fund forecasting real GDP growth to fall to 1.2 per cent this year.

    The construction sector has also been hit hard by cancelled projects and late payments from the government. The two largest contractors, Saudi Binladen Group and Oger, have failed to pay workers on time and had trouble meeting obligations to banks.

    The Saudi central bank on Sunday said it would deposit Sar20bn Saudi riyals with commercial lenders and introduce new money market instruments to tame rising interest rates prompted by the oil slump.

    “There is a lot of concern about the state of economy and liquidity,” said one international banker in Riyadh.

    You must be logged in to post a comment Login