Saudi finance minister vows reform push despite benefits U-turn
Mohammed al-Jadaan plans to inject billions of dollars into economy to boost growth
Saudi Arabia’s finance minister says he will inject billions of dollars into the country’s economy to stimulate growth, while also pledging to push ahead with unpopular reforms after the government’s surprise benefits U-turn last week.
The kingdom has been struggling to strike a balance between boosting anaemic growth and pushing through austerity measures as it grapples with a fiscal crisis triggered by the slump in oil prices.
Last week, Riyadh reversed cuts to civil servants’ benefits, a move that some observers saw as a setback for the reform programme led by Mohammed bin Salman, the deputy crown prince, who last year launched an ambitious plan to overhaul the oil-dependent economy.
But Mohammed al-Jadaan, the finance minister, insisted that the reversal, the first major reform U-turn since Prince Mohammed launched his plan, did not indicate a reluctance to move forward with unpopular measures in the face of domestic criticism.
He told the Financial Times that reinstating the benefits, which spanned bonuses, overtime and other perks and affected two-thirds of Saudis in the civil service, would revive consumer demand. The cuts to civil servants’ benefits helped push the non-oil economy to the brink of its first recession in decades last year.
“The reforms will continue; we are committed,” he said in an interview. “Bringing back allowances is a response to bring back purchasing power and raise the confidence of consumers and the private sector.”
Previous increases in fuel, water and electricity prices, as well as salary freezes, had all been maintained, he added.
Mr Jadaan said a stimulus package for the private sector, including SR10bn-12bn ($2.7bn-$3bn) spent this year to support the construction of 280,000 housing units, would help ease the pain of further reforms.
The package involves a four-year SR200bn programme that is intended to provide low-cost loans to help businesses restructure debts, extend lending limits to companies that contribute to employment and fund small- and medium-sized enterprises.
“The stimulus package is one element to deal with the potential impact of reforms,” Mr Jadaan said.
He acknowledged that growth would be weak this year and next. The International Monetary Fund forecasts growth of 0.4 per cent this year, but Mr Jadaan said he expected it be higher. In 2016, the Saudi economy grew by 1.4 per cent, according to the IMF.
Under Prince Mohammed’s “Vision 2030” plan, Riyadh says it will privatise state entities, including Saudi Aramco, the oil company, shrink the role of the government in the economy and support development of the private sector.
The austerity measures are needed to plug a SR200bn fiscal deficit, but are also a test of the rulers’ ability to wean Saudis off decades of government largesse.
However, government critics say the reforms have so far been centred around austerity and are short on economic diversification. Concerns have also been growing among Saudis about the potential impact of further cost-cutting measures at a time when many are struggling with rising living costs and unemployment.
Mr Jadaan said that government aid to poorer Saudis via the “citizens’ account”, a new system of state benefits, would help cushion the next round of fiscal reforms, which will include the introduction of sales and excise taxes and increases in municipal fees.
“People will need to see Vision 2030 in its totality and we need to communicate, we need to explain what we are doing clearly,” Mr Jadaan said.