Riyadh aims to cut public wage bill by 2020

07 June 2016

Economic plan aims to reduce public sector wages to 40 per cent of government spending

Saudi Arabia aims to reduce public sector wage bills and some of the state subsidies by 2020 as the kingdom repairs public finances amid lower oil prices.

The Saudi cabinet approved the National Transformation Plan (NTP) on 6 June, which is a detailed road map of the broader Vision 2030 unveiled in April by powerful Deputy Crown Prince Mohammed bin Salman al-Saud, who is spearheading the economic transformation of the world’s top oil exporter.

The NTP’s targets include reducing public sector wages to 40 per cent of government spending by 2020 from the current 45 per cent, a sign the government is scaling back the largesse that helped ensure political loyalty in the country. Public debt is forecast to climb to 30 per cent of economic output from 7.7 per cent currently.

The fall in prices of crude, a benchmark against which more than half of the world’s oil is priced, has dropped from a mid-2014 peak of more than $110 a barrel, and has prompted the biggest leadership, economic and policy shake-up in the history of Saudi Arabia. Prince Mohammed bin Salman aims to steer the country away from its reliance on the sale of hydrocarbons for revenues. 

The royal has proposed plans avoided by previous rulers, who used some of the windfall from oil exports over the past decade to create government jobs. However, encouraging Saudi nationals to seek private sector jobs has been a long-term challenge in a country where the government still employs two-thirds of local workers.

The NTP aims to add 450,000 jobs in the private sector by 2020. The plans also aim to revamp industries such as healthcare, double the output of natural gas and increase the number of Saudi women in the workforce. However, public sector employment offers more job security and benefits that include more vacation days, Saudi Civil Service Minister Khalid bin Abdullah al-Araj said at a news conference to unveil the NTP.

The government, which plans to sell a stake in state-controlled oil producer Saudi Aramco and create the world’s largest sovereign wealth fund worth $2 trillion, aims to raise non-oil revenue to SR530bn ($141bn) by 2020, more than triple the current figure. Introducing a value-added tax (VAT) and cutting water and electricity subsidies by SR200bn, including fuel subsidies, will help the government in achieving non-oil revenue targets.

There are, however, no plans to impose taxes on Saudi nationals, Minister of State Mohammad bin Abdulmalik al-Sheikh told reporters.

To bolster its finances, the kingdom raised a $10bn loan in April and is weighing its first international bond sale of as much as $15bn. It has slowed payments to contractors and suppliers, and is considering less conventional methods including IOUs to pay outstanding bills.

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