Saudis Load Up on Debt as Gov’t Austerity Program Bites

Saudi nationals are borrowing two to three times more money than last year as government moves to shore up public finances push living costs through the roof.

Since the beginning of 2018, the government has raised fuel and utility prices, introduced value added tax and imposed a levy on some temporary foreign workers not under an employer’s sponsorship.

But while the authorities’ aim is to boost revenue without snuffing out economic growth, the latest official loan data suggest the policy is hitting ordinary citizens in their wallets, Bloomberg reported.

“Household finances are stretched, so people are turning to credit in order to finance big-ticket expenses such as cars and furniture and day-to-day expenses,” said Jason Tuvey, an emerging-market economist at Capital Economics Ltd. in London.

Loans to help people put their kids through school or college more than tripled in the first quarter compared with a year earlier, to 3.69 billion riyals ($984 million) from 1.02 billion riyals, according to the Saudi Arabian Monetary Authority. Consumers also borrowed more to buy furniture and vehicles, with loans jumping 152% and 85%, respectively.

The moves to burnish state coffers are part of Saudi Crown Prince Mohammed bin Salman’s Vision 2030 plan, which aims to wean the country off of its reliance on oil exports. Consumer prices have soared since the government introduced its measures to balance the budget, with last year’s deflation switching to an inflation rate approaching 3%.

Unemployment Rising

Income is meanwhile under pressure from rising unemployment, which for Saudi nationals climbed to 12.9% in the first quarter, the highest in at least six years.

“Households have seen their disposable incomes squeezed over the past two years” and citizens “likely have less funds immediately available with which to pay their education fees,” said Daniel Richards, an analyst for the Middle East and Africa at Emirates NBD.

A new research shows that an unprecedented exodus of foreign workers is hurting the Saudi economy and this has already become a source of criticism against a controversial domestic labor empowering initiative devised by bin Salman, Albawaba reported.

The research that was carried out by the Riyadh-based Jadwa Investment said the lack of adequate workforce had badly affected the Saudi construction sector over the first quarter of 2018.

It emphasized that this was the result of the departure of around 221,000 foreign workers—mostly unskilled and on low wages—over the same period.  Besides, the number of foreigners leaving the market was not equally met by the number of Saudis hired, probably due to the wage gap between Saudis and expats.

The primary factors that have led to the exodus of foreign workers from the kingdom have been cited as expat dependent fees as well as a controversial Saudization drive—essentially the creation of a more productive local workforce.  

Saudization Fails

Recent media reports said the unemployment rate among Saudi citizens edged up to a record 12.9% in the first quarter of this year.

The figure was the highest recorded by the official statistics agency since 1999 and showed the difficulties which Saudi Arabia faces as it pushes through austerity steps to close a big state budget deficit.   

Over the past few months, criticism has been growing that bin Salman’s Saudization drive have failed to solve the problems in the job market and that the kingdom’s rules and regulations do not support it.

In February, a number of heads of chambers of commerce and industry were reported to have called on the government to exempt the private sector from “100%”—or full—Saudization, especially posts that are hard to fill, such as in construction, amid concerns that many businesses may close down.

As of April, more than 800,000 foreign workers had left the country since late 2016, alarming domestic companies concerned that they cannot be easily replaced.

There have been other reports that Saudi business owners are having difficulty getting locals, accustomed to undemanding work in the state sector and generous unemployment benefits, to work for them. Reports suggest many Saudis are put off by what they regard as poorly paid, low-status jobs.

The recruitment problems have seemingly sparked so much concern that they have been played out on the pages of the Saudi Gazette, the government’s mouthpiece, which normally features anodyne stories about life in the kingdom.