The government also curbed allowances for state employees and pared salaries of members of the Shura Council, which advises the monarchy, by 15 percent, the official Saudi Press Agency reported. It cited a statement after the weekly cabinet meeting and royal decrees. The decision affects bonus payments for the lunar year that ends this month, the agency said.
Under Deputy Crown Prince Mohammed bin Salman, the world’s biggest oil exporter is seeking to tame a budget shortfall that expanded to 16 percent of gross domestic product last year, the highest among the world’s 20 biggest economies. The government has delayed payments owed to contractors and started cutting fuel subsidies as it tries to manage lower oil prices, reports Reuters.
“Spending on wages soared as oil prices boomed,” Simon Williams, HSBC Holdings Plc’s London-based chief economist for Central and Eastern Europe, the Middle East and North Africa, said in response to e-mailed questions. With the deficit set to run above 10 percent of GDP for a second year in succession, “that era is over; wage spending has to be cut.”
Projects Slashed
Lower oil prices and government austerity have started to impact the economy, with growth forecast to slow to 1.1 percent this year, the lowest level since 2009, according to data compiled by Bloomberg. Consumer spending has been hit by government’s efforts to lower the deficit.
Monday’s announcements made no mention of how much the cuts would save. Saudi Arabia was weighing plans to cancel more than $20 billion of projects and slash ministry budgets by a quarter to repair its finances, people familiar with the matter said earlier this month.
There are also plans to sell the kingdom’s first international bond, which could raise more than $10 billion, according to people aware of the plans. Authorities set up the National Project Management Office last year to control capital spending and ensure that government projects are carried out efficiently.
“This is clearly a sign to the people that the government is tightening its belt” and that it sees low oil revenues continuing for some time, said Paul Sullivan, an adjunct professor of security studies at Georgetown University in Washington. “It may prompt some to move to the private sector but don’t expect an exodus out of higher paying solid government jobs to riskier, lower paying private-sector jobs.”