Saudi king's aid package will ease income gap

Saudi Arabia's 135 billion riyal (Dh132.2bn) financial aid package is a key step in helping to alleviate the income gap in the kingdom, economists say.
But the cash injection should be combined with broader, longer-term reforms to tackle pressing unemployment, a shortage of affordable housing and rising inflation, they say.
"It's not textbook economics," said Jarmo Kotilaine, the chief economist of NCB in Saudi Arabia. "But if there was ever a time to spread some of the largesse from higher oil windfalls, it is now during the regional stress."
King Abdullah announced a raft of financial support measures on Wednesday, intended to help some of the poorest in the kingdom.
The size of the package was more than double that of a plan rolled out three years ago after inflation reached double-digit highs, said Banque Saudi Fransi.
Some of the latest benefits were unprecedented. For the first time, jobless Saudis were granted unemployment benefits for a year.
Other measures were similar to steps taken elsewhere in the region. For example, the government said it would not phase out an inflation allowance that had raised public worker pay by 15 per cent over the past three years.
The initiative follows weeks of surging discontent in the region that led to the toppling of decades-old regimes in Tunisia and Egypt, protests in Bahrain and Yemen, and embroiled Libya in turmoil.
Unlike some of those countries, Saudi Arabia is more than comfortably able to finance social welfare benefits. Oil prices this week reached prices not seen in two and a half years, helping to further boost the country's existing net foreign assets, which are estimated at 1.65 trillion riyals.
Economists said the aid package may have been planned for some time.
"It's apparent that this has been carefully thought out and not a knee-jerk reaction to regional events," said David Butter, the Mena director of the Economist Intelligence Unit.
Despite the kingdom's large fiscal reserves, Saudi Arabia shares some of the problems of less wealthy nations in the Middle East.
The royal order sought to arrest existing imbalances. It included expanding social insurance schemes to enable families to claim benefits for up to 15 members, higher than a previous cap of eight.
A further 3.5bn riyals will be set aside to support citizens' household expenses such as home furnishings, school uniforms, utility bills and home improvements.
One of the more eye-catching initiatives included the creation of 300 jobs in the Royal Court to find out the needs of citizens.
Under the package, significant funds will be injected into housing. As well as raising the General Housing Authority's budget by 15bn riyals, the king allocated 40bn riyals to the country's property development fund.
The kingdom also suffers from a shortage of affordable housing for people in middle to lower-income groups.
Education was another area addressed. A state scholarship scheme will admit all Saudi students studying abroad and a fund of 100 million riyals will be created for students in need of financial support.
It remains to be seen whether the aid will be sufficient to tackle some of the country's biggest problems.
"Challenges this year will involve tackling head-on key economic concerns, most prominently employment generation, housing, the rising cost of living and moderating disposal incomes," John Sfakianakis and other economists wrote in a Banque Saudi Fransi research report released yesterday.
Unemployment in the kingdom ran at 10.5 per cent in 2009, with joblessness among those aged between 20 and 24 four times higher.
Rising prices of commodities, especially food staples, in recent months have exacerbated inflationary woe in Saudi Arabia.
 
tarnold@thenational.ae