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November 6, 2016

Saudi Government Employees Face Austerity

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By Rob L. Wagner

The Arab Weekly

6 November 2016

Jeddah – Saudi government employ­ees have received their first pay cheques since the an­nouncement that salaries would be slashed as part of a fiscal austerity programme.

The new salaries, deposited in bank accounts at the end of Octo­ber, provided Saudis — including all ministers and Shura Council mem­bers — with their first glimpse that belt-tightening was a stark, and per­haps permanent, reality.

“The economic programme will affect the lower- and middle-in­come people and won’t affect the wealthy,” said Assad Jawhar, an eco­nomics professor at King Abdulaziz University in Jeddah.

The salary cuts are a bitter pill for many Saudis to swallow. Basic sala­ries are not particularly high in the government sector but allowances for housing, transportation, com­puter skills and other competencies vital to performing duties can add up to 40% to the total salary pack­age.

By eliminating allowances, some public workers saw their take-home pay reduced almost half. In some cases, Saudi workers had previ­ous deductions of up to one-third of their basic salary to repay gov­ernment overpayments. With the elimination of allowances and up to one-third in deductions from their basic pay, some employees saw their monthly income drop as much as 60%.

The Saudi middle class has been steadily shrinking and the cuts in wages among government workers will have a significant effect on the growth of middle-income bread­winners.

The salary cuts are just one av­enue Deputy Crown Prince Moham­med bin Salman bin Abdulaziz Al Saud and his advisers are pursuing to boost government coffers. It also raises the issue of whether austerity programmes work, especially when sacrifices from lower- and middle-income workers serve as the back­bone of the programme.

Economists caution that Saudi Arabia’s economic woes cannot be compared to those of the European Union or the severe austerity plan that caused considerable upset in Greece. Consumer confidence, high among the desirables to produce a robust economy, does not necessar­ily apply to Saudi Arabia.

Charles Schmitz, professor of ge­ography at Towson University in Baltimore, Maryland, and a special­ist in Gulf economic policies, said Saudi Arabia’s austerity programme and salary cuts are painful but nec­essary.

“State employment in the king­dom is welfare,” he said. “The state’s bureaucracy is bloated as a means of passing the revenues from the state to society.

“The Saudis are used to a high standard of living that is based upon rents from oil, not labour produc­tivity. The prince’s programme is to help Saudis get used to the idea of tying their level of living to their productivity. It may be hard landing for a lot of Saudis but it is a neces­sary one.”

While salary cuts among minis­ters and the Shura Council and the recent sacking of Finance minister Ibrahim al-Assaf and replacing him with Mohammed al-Jadaan have garnered attention, most of the ministries have quietly reduced the number of expatriate workers, cur­tailed travel to seminars and confer­ences and discouraged extra train­ing at the employer’s expense.

In October, the Civil Service Min­istry’s Replacement Administration rejected 478 out of 516 contract re­newals for expatriate medical work­ers at King Saud University. The de­cision affects employees on the job for more than ten years and paves the way for the university to hire Saudis with postgraduate degrees.

Jawhar said the burden of the government’s programme is placed squarely on the average worker. He said spending is higher among the low- and middle-income Saudis in proportion to their monthly salaries compared to the buying habits of the wealthy.

He said a priority should be to eliminate corruption but also to ensure high-income earners con­tribute revenue to the government through taxation.

“They should go to the rich and target companies,” Jawhar said.

“The question is who is going to be affected negatively by the deci­sion? During the past ten years, the middle class has been shrinking. [The programme] will affect them.”

The Saudi government is deter­mined to eliminate entitlements to reduce the country’s $98 billion fis­cal budget deficit. The International Monterey Fund is optimistic that the government can cut the deficit to 13% of the gross domestic prod­uct in 2016 and to less than 10% in 2017.

To help accomplish this, Saudi consumers have been encouraged to curb recreational activities and spend less on luxury items and even curtail how much they spend at the market.

Schmitz said he is optimistic the strategy will be successful. “De­mand comes from two sources: Consumers and investors. The Sau­dis want to shift the demand from the consumer market to the private investment market so that there is more investment in the non-oil pri­vate sector. Investment can drive an economy just as much as consumer demand.”

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