Three weeks after his accession, King Abdullah announced on 22 August a raft of economic measures aimed at increasing public sector salaries and improving government services.

The most significant measure was a royal decree increasing the salaries of all local public sector employees and pensioners by 15 per cent. In addition to the salary increase, the first for years, all grade 5 employees and below, including those in the military, will receive an extra month’s pay. Members of the Majlis al-Shoura (consultative council) will also receive a 15 per cent increase in their gratuities. Allocations from the family social insurance fund will increase to SR 28,000 ($7,466) from SR 16,200 ($4,320).

Some private sector companies have already followed the government lead, increasing the salaries of their employees by a similar amount, although it remains to be seen whether expatriate workers will also receive pay rises.

Key public sectors have also benefited from an injection of new cash from the kingdom’s coffers. The decree allocates SR 30,000 million ($8,000 million) from the fiscal year 2004 surplus of SR 98,000 million ($26,100 million) for the second phase programme of improving and developing public services. The Department of Water & Sewerage at the Ministry of Water & Electricity and the Saline Water Conversion Corporation (SWCC) will receive SR 7,000 million ($1,866 million). Primary healthcare, roads, school, university and vocational training buildings and water drainage have been allocated SR 23,000 million ($6,133 million) between them.

The kingdom’s real estate fund and public housing sector have also benefited from Riyadh’s largesse. The fund will receive SR 9,000 million ($2,400 million) from the budget surplus, while SR 8,000 million ($2,133 million) has been allocated for housing projects across the region.

Additional surplus cash will be directed towards the Credit Bank, increasing its total capital to SR 6,000 million ($1,600 million), and to the Saudi Industrial Development Fund, which will see its capital increase by SR 7,000 million ($1,866 million) to SR 20,000 million ($5,333 million). Some SR 15,000 million ($4,000 million) will be allocated to assist the Saudi exports programme, while any remaining surplus will be used to pay down the kingdom’s external debt.

It is unclear whether the allocations are from the existing budget announced last December or additional funds from the surplus. ‘If it is totally new money, then we are looking at quite a massive injection of public spending,’ says one local economist. ‘But at the moment we just don’t know where it is coming from until further details are revealed.’

The inflationary pressures from the pay rise may also be a factor. ‘I don’t expect inflation to be an issue for imported goods, but for non-trade goods this could be cause for concern,’ says the economist. ‘Increased liquidity from the pay rises is expected to be inflationary.’