Restoring public allowances to cost Saudi about SAR7bn in 2017

Restoring financial allowances to civil servants and military personnel will only cost the government about SAR7bn ($1.9bn) this year, a senior finance ministry official told Al Arabiya television on Thursday.

“Restoring allowances will not have a huge impact on the budget…It will cost about SAR7bn this year,” said Hindi al-Suhaimi, undersecretary at the ministry of finance.

Its budget pressured by low oil prices, the government slashed the allowances last September in order to save money, but announced last month that it would restore them as a way to stimulate economic growth and because its deficit in the first quarter was smaller than expected.

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The SAR7bn figure is smaller than many private economists have been estimating; they have been projecting an annual boost to the economy of between SAR50bn and SAR80bn due to the restoration of allowances.

Suhaimi did not explain the difference. While it is restoring the allowances, the government may be considerably more careful about awarding them this year, especially for categories such as overtime work.

The government has projected a budget deficit of SAR198bn this year, down from SAR297bn in 2016.

Suhaimi also told Al Arabiya that the government did not plan to return to the international debt market before the fourth quarter of this year, though the decision would depend on factors such as market conditions. Riyadh raised $9bn with an international issue of sukuk last month.

The government intends to resume domestic bond issues sometime in “coming months”, Suhaimi said. It suspended monthly issues in the domestic market late last year in order to ease pressure on liquidity in the Saudi banking system.

About 25 to 35 per cent of the 2017 deficit will ultimately be covered by local bond issues, Suhaimi said.