Around SR185bn will be spent in 2011 and rest in following years
Saudi Arabia will lavish nearly SR485 billion ($131 billion) in the next few years within a massive socio-economic initiative announced by King Abdullah over the past month to meet public demands for housing, jobs and other needs.
Nearly SR185 billion ($50 billion) will be spent this year, amounting for around 38 per cent of the total allocations which include mostly funding for the construction of 500,000 houses, Banque Saudi Fransi (BSF) said in a study.
BSF's estimates were little below earlier forecasts about the Royal initiative's costs, which it had put at around SR500 billion. They were also far lower than estimates by National Commercial Bank, which put them at SR6550 billion.
"These funds will be distributed over several years, although we anticipate 38 per cent of the money, or around SR184.96 billion, should be dispersed before the end of the year," BSF said in the study sent to Emirates 24/7.
"A large portion of the funds will go toward the estimated SR53-billion price tag associated with the payment of onetime bonuses for all public sector staff and students, granted under the scheme."
It noted that active employees and pensioners in civil service positions and military personnel were granted two month salary bonuses, as were university students studying at public universities and abroad.
It said the bulk of these bonuses - which should have a temporary impact unless they become an annual trend - had been distributed by the end of the first quarter. Private sector banks and large companies like Saudi Aramco, meanwhile, took cue from the state move and offered employees similar one-time bonuses, which should contribute to inflationary pressures as the purchasing power of citizens and residents is heightened.
Tackling a mounting challenge of joblessness, particularly among youth, the government will introduce for the first time an unemployment benefit of SR2,000 per month payable for a period of one year for unemployed people looking for work in the public and private sectors, according to BSF.
"The benefit will come into force in the new Hijri year, which begins in November.
Unemployment payouts will thus be reflected in the Saudi budget next year, when the programme is fully rolled out at a cost of about SR10.8 billion annually."
Striving to improve the pay scale of employees in the public sector, the king also ordered the minimum wage for civil service employees to be raised to SR3,000 from SR2,185. But it is still unclear how this SR815 rise will affect the entire payscale, which for general public service personnel ranges as high as SR20,250 depending on tenure and position.
"Assuming all employees receive an average raise of SR500 per month, the pay increase would cost approximately SR5.3 billion in 2011 and add at least SR7.08 billion to the full-year wage bill in 2012 and subsequent years," BSF said.
"If the pay raises are higher, at SR815 across the board for instance, the cost would rise to SR8.7 billion in 2011 and SR11.54 billion in 2012."
The study said that new social insurance benefit rules that enable families to claim benefits for up to 15 members, from a previous cap of eight, are further likely to add SRone billion in new spending this year.
An additional SRtwo billion should be spent on programmes to support citizens with household expenses including home furniture, school uniforms and books, utility bills, and home renovations, as well as support associations for handicapped persons, it added.
"With all the new spending, we have revised our fiscal forecasts to reflect both the greater strain on state finances and the likely jump in public revenues due to the more robust oil price environment," it said.
BSF said it expected Riyadh to resort to its massive foreign assets to support that initiative but it stressed high oil prices are needed for such high spending.
"The oil price needed to balance the 2011 Saudi budget is exceptionally high at about $80 a barrel for Saudi crude ($84 for WTI), up from half that level in 2006.
The breakeven oil price is likely to ease to about $77 a barrel next year ($81.5 WTI), but the abrupt gain in the breakeven price underlines the longer-term risks involved with drastically raising current expenditures, including wages, as they cannot be easily scaled back should oil prices decline in the future."
It said that while the Saudi Arabian Monetary Agency does have a huge store of foreign assets to cover any shortfall in the budget for a number of years to come, the government should be attentive of the need to exercise prudence and rely more heavily on the private sector to generate jobs and invest in the economy.
© Emirates 24|7 2011
