Saturday 18 August 2018
 
»
 
»
SPECIAL REPORT

Saudi sends strong message with cut in wage, benefit bill

RIYADH, September 27, 2016

Saudi monarch King Salman bin Abdulaziz Al Saud's decision to slash ministerial pay by a fifth reflects the kingdom's resolve to nudge its citizens into tolerating a fall in living standards at a time of low oil prices, said experts.
 
King Salman had on Monday issued a royal order cutting ministers’ salaries by 20 per cent and reducing bonuses allocated to members of the Shura Council by 15 per cent starting from October 2.

Along with reductions unveiled yesterday that will affect all public sector workers, the cuts also flag to financial markets before a debut sovereign bond issue that the oil exporter is committed to budget discipline.

The measures appear largely to formalise savings introduced ad hoc in parts of the state apparatus since last year.

Some Saudis appeared prepared to accept austerity following the signal that ministers would share the pain.

"Most of my colleagues are furious, but I see it as normal at such times," said Fahad, 27, a post office worker, who said his monthly take-home pay, including benefits, would fall to SR4,800 ($1,280) from SR6,000. "The country has given us a lot in the past and it is our duty to show solidarity now."

A lack of taxes, a big public sector, subsidised fuel and abundant government spending are benefits that officials have long cautioned are unaffordable, yet are seen as a right by many citizens because of the kingdom's high oil output.

But energy prices have plummeted since mid-2014, causing steep declines in income and putting economic growth at risk.

It was unclear how far the steps will trim a budget deficit that reached a record $98 billion last year.

In any case the wage cuts for ministers and others "of ministerial rank", while unlikely to win big savings by themselves, appear specifically aimed at deflecting public anger by targetting those at the apex of society, economists said.

The foreign exchange, credit default swap and international bond markets were little moved by the news. But initial reaction on regional stock markets was negative, as traders concluded the cuts would curb consumers' disposable income. Saudi Arabia's main stock index closed down 3.8 per cent.

"LISTEN AND OBEY"

Others on Twitter expressed their acceptance of the cuts to wages and other financial benefits that can form a large part of Saudi's overall income.

The hashtag "We are all today King Salman's sons" was trending, and the message "Listen and Obey", as the main duty of citizens towards their rulers, was widely shared.

Abdulaziz Al Askar, a legal adviser, tweeted that Saudis' ancestors swore allegiance to the Al Saud based on Islam and not on the basis of "allowances and bonuses".

Nawaf Al Otaibi, 42, who does civilian work for the Ministry of Defence, said the cuts would help to address long-term economic pressures and ease further sweeping reforms, which include the partial privatisation of oil giant Saudi Aramco. Reduced benefits would result in belt-tightening, he suggested.

"I get about 20 to 30 per cent of my total income from these extras, so I'll have to cut back on spending - maybe put off some plans for the future but mostly just cut back on daily spending for the family, on the kids, things like this," he said.

From an international perspective, the measures constitute an attempt to convey the government's seriousness about tackling the budget deficit, economists say.

Apostolos Bantis, head of emerging market corporate credit research at Commerzbank, said the payroll and benefit cuts were "trying to send a signal to investors that the government is serious about reforms and that it's ready to even touch something sensitive and political".

"The government is trying to give a signal to the local population that they need to tighten their belts and that this is starting from the top."

Monica Malik, chief economist at Abu Dhabi Commercial Bank, said she estimated that savings from the cuts would amount to less than 1.5 per cent of gross domestic product (GDP).

But she added that the message was stronger than the anticipated savings. "Nothing is off bounds for potential fiscal reforms and it shows ongoing momentum to narrow the fiscal deficit. This is especially ahead of the expected international bond issuance," she said.

NCB Capital estimated allowances accounted for about a quarter of the government's total salary bill last year, which was 38 per cent of its overall budget of about $260 billion. But it is not known how far the latest measures will curb government spending on allowances, which Saudis say are many and varied.

More substantial ways of plugging the budget gap include a $10 billion loan obtained from international banks in May and Saudi Arabia's debut international bond issue expected in October. Bankers expect it to be worth a minimum of $10 billion.

The central bank said on Sunday it had decided to inject around SR20 billion in time deposits into the banking system and introduced two new maturity periods for repurchase agreements, aiming to help boost financial stability in the local market.-Reuters




Tags: Saudi Arabia | message | wage | benefit |

calendarCalendar of Events

Ads