Handouts please Saudis but show struggle to revamp economy

The skyline above the King Fahd highway in Riyadh, Saudi Arabia

Saudi authorities said they’ll spend billions of riyals to help citizens offset the impact of a value-added tax and a surge in gasoline and utility prices, a move that will help ease public discontent while highlighting the kingdom’s struggle to overhaul its economy.

King Salman, in a series of royal orders early on Saturday, restored an annual pay raise for Saudi civil servants, suspended as part of attempts to rein in a hefty public-sector wage bill. He ordered a 5,000-riyal (USD1,333) bonus for soldiers fighting in Yemen and granted Saudis working for the state an extra 1,000 riyals a month as a “cost of living” allowance for a year. The government will also pay part of the newly introduced VAT.

The measures will likely be cheered by Saudis who took to social media and television to criticize surging prices and the implementation of a 5 percent VAT on a wide array of products as of Jan. 1. Yet they also show how the kingdom’s rulers are struggling to find a balance between the need to avoid unrest and take the difficult steps needed to reduce what policy makers and economists see as an unsustainable reliance on oil revenue.

“The main story from what’s happened over is not the deterioration to the budget, it’s not the marginal uptick in consumption that’s going to result from the handouts but it’s just the fact that this is a government that is very careful about implementing any measures that might be perceived as painful for the Saudi households,” Jean-Paul Pigat, Dubai-based head of research at Lighthouse Research, told Bloomberg TV.

Finance Minister Mohammed Al-Jadaan, appearing on state television to explain the reasons behind the price increases, struggled to keep up with repeated questions over the impact on citizens. Calls for the return of annual pay increases for public-sector workers were persistently trending on Twitter. Two-thirds of Saudi employees work in the public sector.

Discontent wasn’t limited to average Saudis. Security services on Thursday arrested 11 princes after they staged a palace protest in the capital over the non-payment of their electricity and water bills, the attorney general said in a statement. The princes were moved to al-Ha’er prison pending trial, he said. Bloomberg

11 Saudi princes arrested for palace protest

A state-linked Saudi news website says 11 princes have been arrested and will be tried for staging a protest at one of the king’s palaces and refusing orders to leave. The Sabq website, quoting unnamed officials, reported Saturday that a division of the National Guard, which is tasked with protecting the royal family, was ordered to arrest the princes. The news website reports the royals were sent to Ha’ir prison, a large maximum security facility south of the capital, Riyadh, run by Saudi intelligence services, where criminals, militants and al-Qaida terrorists are held.