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Abu Dhabi, UAESunday 18 November 2018

Saudi decree on public sector bonuses to cost up to 6bn riyals

The kingdom’s finance ministry told Reuters on Thursday that the payments, which were stopped for seven months, will comprise between 0.6 and 0.7 per cent of the 2017 budget and will be covered by contingency funds.
Staff at the Saudi finance ministry during the Euromoney conference held in Riyadh on May 2, 2017. Fayez Nureldine / AFP
Staff at the Saudi finance ministry during the Euromoney conference held in Riyadh on May 2, 2017. Fayez Nureldine / AFP

ABU DHABI // King Salman’s decree ordering the back payment of allowances and bonuses for public employees that had been cut for seven months will cost the Saudi treasury between 5 and 6 billion riyals.

The kingdom’s finance ministry told Reuters on Thursday that the payments, which were stopped for seven months, will comprise between 0.6 and 0.7 per cent of the 2017 budget and will be covered by contingency funds.

“This should not impact the overall budget or the budgeted deficit but we expect that it will contribute towards increased consumer spending and confidence, serving as a boost to economic growth and ensuring stability in consumer demand trends going forward,” finance minister Mohammed Al Jadaan said.

The move, announced on Wednesday, is one of a series of decrees accompanying the naming of Prince Mohammed bin Salman as crown prince and heir to the Saudi throne, and should not affect the goal of balancing the country’s budget by 2020, Mr Al Jadaan said. It would be offset by new sources of revenue such as the increase in fees for dependents living with expat residents, which is set to begin next month, he added.

Last September King Salman announced allowances and other benefits for government employees – who make up two thirds of Saudi workers – would be cut because of the enduring strain on budgets caused by protracted low oil prices. The new crown prince, who is leading efforts to liberalise the Saudi economy and expand the private sector, had said such painful austerity measures were necessary for long-term reform.

But amid growing disquiet among Saudi citizens and businesses – as well the finance ministry’s desire to stimulate a flagging economy – the cuts were ended in April.

The U-turn may indicate the limits of quickly pushing through austerity measures before slower-moving reforms to the economy create jobs for Saudis.

There are also questions about the sustainability of backpaying benefits, as Saudi-led efforts to prop up the price of oil have had mixed results, Indeed, the price again dipped lower this week.

The rolling back of money-saving measures came as Prince Mohammed was promoted to a position many expected him to eventually take, but were surprised happened so quickly.

Prince Mohammed has built close ties to the White House, and US president Donald Trump called the prince on Wednesday night to congratulate him and discuss bilateral cooperation on counter-terrorism and deepening economic ties.

They also “discussed the priority of cutting off all support for terrorists and extremists, as well as how to resolve the ongoing dispute with Qatar”.

Mr Trump has backed Saudi and Emirati measures to isolate Doha over what they say is its support for extremist groups, but has also offered to act as a mediator between three important regional partners. Mr Trump’s defence and state department’s have taken a more neutral position.

The call came after the US secretary of state Rex Tillerson, who is reported to be leading US mediation efforts, expressed support for Kuwait’s shuttle diplomacy between the Gulf countries. He also said he hopes a list of demands will soon be presented to Doha and “will be reasonable and actionable”.

Mr Tillerson’s comments came a day after the state department’s spokeswoman criticised the UAE and Saudi Arabia for not having yet delivered specific concessions they want from Qatar.

tkhan@thenational.ae