RIYADH, Saudi Arabia, Saudi Arabia will cut government employees’ bonuses and benefits for the first time in an attempt to reduce spending during low oil prices.
Public-sector jobs account for two-thirds of the nation’s workforce; their salaries and allowances were almost half of government spending in 2015 of about $120 billion.
Civil servants also will see wage increases suspended, and the capping of overtime and annual leave.
The changes starting next month apply to all public sector workers. Soldiers serving in Yemen are exempt from the cuts.
Also, ministers’ salaries would be reduced by 20 percent, and housing and car allowances for advisory Shura Council members cut by 15 percent.
“The ministers’ wage cut is symbolic in nature, but overall it demonstrates to the world — because this is prior to the bond issuance program — that Saudi Arabia is quite serious to tackle things that were once quite taboo issues,” John Sfakianakis, director of economic research at the Gulf Research Center, told Bloomberg.
In April, Crown Prince Mohammad bin Salman al-Saud unveiled plans to reduce government spending and decrease its dependence on oil revenue to counter a budget deficit of $98 billion. About 72 percent of the country’s revenue came from oil in 2015.
The “Vision 2030” initiative would reduce the payroll to 40 percent of the budget by 2020 and boost private sector employment.
The world’s biggest oil exporter has already delayed payments to contractors and started cutting fuel subsidies.
A Bloomberg survey revealed growth is forecast to slow to 1.1 percent this year, the lowest since 2009. In May, Moody’s downgraded the nation’s credit rating from A1 from Aa3 and assigned a stable outlook because government’s finances “deteriorated significantly.”
“Spending on wages soared as oil prices boomed,” said Simon Williams, HSBC Holdings Plc’s London-based chief economist for Central and Eastern Europe, the Middle East and North Africa. “That era is over; wage spending has to be cut.”
The pay cuts are not sitting too well with workers.
Saleh Al Qarni, a government school teacher who also is a driver to earn extra cash in Riyadh, told Bloomberg canceling bonuses may affect Saudis “psychologically.”
“For me as a teacher, it might affect me in school, honestly,” he said.
By Allen Cone