Saudi Arabia cuts ministers' pay as oil revenue shrinks

Caps on overtime pay and annual leave for civil servants

RIYADH • Saudi Arabia has announced sudden, drastic cuts to salaries and perks for government employees as part of the kingdom's struggle to slash spending at a time of low oil prices.

The cuts, unveiled in a series of royal decrees and Cabinet statements read aloud on state television on Monday, reduced ministers' salaries by 20 per cent, slashed perquisites for members of the consultative assembly, and limited overtime pay and vacation for civil servants.

The drop in world petroleum prices since 2014 has caused major financial problems for the Saudi government, which gets most of its income from oil. Saudi Arabia ran a Budget deficit of nearly US$100 billion (S$136 billion) last year.

The new measures came as a shock to many in the country's bloated public sector, which for decades has served as a vehicle for the royal family to distribute its oil wealth in the form of well-paid jobs that often require little work. More than two-thirds of employed Saudis work for the government.

The government this year started a major project, known as Vision 2030, aimed at overhauling the economy, reducing the dependence on oil and creating a more productive native workforce.

Yet, few of the plan's measures have been put in place. The government has raised fuel and water prices and frozen large construction contracts, leaving some companies unable to pay their workers.

But Monday's cuts were the first to reduce pay cheques.

Royal decrees cut ministers' pay by 20 per cent and forced them to pay their own telephone bills for personal lines. They also cut by 15 per cent the stipends for housing, cars and other perks for members of the country's consultative Shura Council, who are appointed by the King.

The Cabinet limited the bonus that civil servants can earn for working overtime and capped annual leave at 30 days. It also put a freeze on new hires for government jobs until the end of the year.

Under Deputy Crown Prince Mohammed Salman, the world's biggest oil exporter is seeking to tame a Budget shortfall that expanded to 16 per cent of gross domestic product last year, the highest among the world's 20 biggest economies.

Besides its Budget difficulties, the Saudi economy also faces a demographic challenge, with an estimated 300,000 new job seekers entering the market every year. With the government unable to absorb them, many economists doubt that the private sector can either, threatening to raise unemployment rates.

The kingdom's current economic woes show how much the situation has changed for the Saudi monarch, King Salman, since he ascended to the throne in January last year. Soon after, he decreed a cash bonus worth two months' salary to all government employees - at an estimated cost of US$32 billion.

"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 Prof Paul Sullivan, adjunct professor of security studies at Georgetown University in Washington .

Monday's announcements made no mention of how much the cuts would save. Saudi Arabia was weighing plans to cancel more than US$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 US$10 billion, according to sources.

NYTIMES, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on September 28, 2016, with the headline 'Saudi Arabia cuts ministers' pay as oil revenue shrinks'. Print Edition | Subscribe