World Economy

Over Deficits and Low Oil Prices Expats in Saudi Arabia Paying a High Price

Over Deficits and Low Oil Prices  Expats in Saudi Arabia Paying a High Price  Over Deficits and Low Oil Prices  Expats in Saudi Arabia Paying a High Price

Saudi Arabia is looking to diversify its oil-dependent economy and has already announced cutbacks after its 2015 deficit snowballed to $97 billion. The long spell of lower oil prices has begun to tell on world’s largest oil producer in a menacing manner.

Not only is the kingdom facing lower revenue from oil sales, it is also involved in a costly war in Yemen which is eating up a lot of its income. There are reports that Riyadh is mulling exploring various options to raise its revenues. Expatriates working in Saudi Arabia have also been hit by the current economic slowdown there, news outlets reported.

Unfortunately, Saudi Arabia has already lost numerous opportunities to transform its rent-seeking economy into a manufacturing or services trade economy.

Saudi Arabia unveiled its budget for 2017 last week and it’s not good news for companies and expatriates (migrant workers), notwithstanding the OPEC oil output deal. This is going to hurt the expats estimated at 11.6 million living in the kingdom.

The country hopes to earn 46% more in oil revenues in 2017 at Saudi Arabian riyal 480 billion ($127.91 billion), with non-oil revenues expected to come at SAR 212 billion, but there is nothing for expats to cheer about.

Companies employing expats could end up paying a monthly fee of SAR300-400 per non-Saudi employee by 2018 (which would increase to SAR700-800 per employee by 2020).

As for expats, they will have to individually pay SAR100 every month for each of his/her dependents starting from next year; this also will be raised in a calibrated manner to hit SAR400 per dependent, by 2020, IBTimes reported.

The move is being seen as “Saudization” of the country, a concept that resonates with “son of the soil” concept in India, or, to put it differently, indirect reservation that puts expats at a disadvantageous position.

 Final Figures  

Saudi Arabia said that it ended 2016 on a slightly better note, with the budget deficit contracting to SAR297 billion (about $79 billion) as against $326 billion envisaged earlier. Revenues and expenses stood at SAR528 billion and SAR825 billion, respectively, in 2016.

The country plans to spend SAR890 billion in 2017, leaving behind a deficit of SAR198 billion, 33% lower from that posted in 2016.

In response, the government has already slashed energy subsidies and cut wages for officials.

But in a new report—the Fiscal Balance Program 2020, published over the weekend—it warns of dire consequences if it doesn’t press ahead with more dramatic measures.

“The government would find itself in a place of needing to cut capital spending by at least 90%, cut government operational spending by at least 30%, cut government wage bill by at least 30% and substantially cut government retirement benefits,” it said, if no further action were taken CNNMoney reported.

 New Plans

Saudis have long enjoyed heavily subsidized water, gas and other energy supplies. That began to change this year when a “marginal correction” was introduced, saving the government about 28 billion riyals.  But those price increases will be dwarfed by what’s coming down the pipe.

The government is expecting to save 209 billion riyals per year by 2020 by gradually phasing out subsidies. “The prices of those products will be revised periodically, based on increasing the percentage linkage with the international market prices,” it said.

That will mean Saudis paying much more each year to fill their cars and cool their homes.

Cutting subsidies and raising taxes will also risk damaging the economy and hurting lower income families.

So the government has set out plans to boost the private sector, including an investment fund worth 200 billion riyals to help diversify the economy. The fund should help companies become more efficient.

It will also introduce a housing allowance for low and middle income households next year. That will cost the government as much as 70 billion riyals a year by 2020.

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