Saudi handouts to cost about $13bn

A package of handouts to Saudi Arabian citizens to compensate them for cost of living increases will cost the government about SAR50bn ($13.3bn) this year, the information minister was quoted as saying on Sunday.

“The allocation of SAR50bn for this decree indicates the leadership’s concern for the people’s comfort and quality of living,” minister of culture and information Awwad bin Saleh Alawwad told the Saudi-owned Al Sharq Al Awsat newspaper.

On Saturday, King Salman ordered a monthly payment of SAR1,000 to state employees over the year in compensation for the rising cost of living after Riyadh hiked gasoline prices and introduced value-added tax. Pensioners and soldiers will also be given bonuses, while the government will bear the cost of VAT in some situations, such as the first purchase of a home.

Read: Saudi king orders new payments to offset rising living costs

Alawwad also repeated previous government statements indicating Riyadh would spend SAR30bn this year on the Citizens Account, a household allowance scheme designed to reduce the impact of austerity policies on low and middle-income Saudi families.

Read: Saudi makes first $533m payment to social support scheme

Saudi Arabia, the world’s top oil exporter, roughly doubled domestic gasoline prices last week as part of reforms aimed at diversifying its economy. A 5 per cent VAT on a broad range of goods and services came into effect on the same day.

Private economists have estimated the government will raise about SAR40bn in 2018 through VAT. The government did not announce how much money it expected to make from the gasoline price hike, but previous statements by officials have suggested it would be in the tens of billions of riyals.

A state budget plan released last month projected a deficit of SAR195bn, or 7.3 per cent of gross domestic product, in 2018. The budget appeared to assume an average oil price of about $55 a barrel; Brent crude is now around $67, so Riyadh may be able to afford the royal handouts without any damage to its finances.