Country Report Saudi Arabia May 2011

Outlook for 2011-15: In focus

Highlights of King Abdullah's second economic package

  • The introduction of a minimum wage of SR3,000 (US$800) per month for public-sector employees.
  • A one-off cash payment equivalent to two months' salary to all state employees.
  • An unemployment benefit of SR2,000.
  • SR250bn (US$66bn) allocated for the building of 500,000 new housing units.
  • An increase in the loan ceiling offered by the Real Estate Development Fund to SR500,000.
  • SR16bn for new hospitals.
  • 60,000 new jobs at the Ministry of Interior.
  • SR500m (US$132m) for the renovation of mosques.
  • SR300m for the Ministry of Islamic Affairs.
  • SR200m for the Holy Quran Memorisation Associations.
  • 300 new jobs for the General Presidency for Religious Research.
  • SR200m to build new regional head offices for the Commission for the Promotion of Virtue and Prevention of Vice.
  • The setting up of an anti-corruption commission, reporting to the king.

However, we do not expect the full amount to be disbursed this year, reflecting a likely lag between announcing and implementing new housing initiatives and overcoming bureaucratic bottlenecks. In addition, the impact on the public finances will be mitigated by the recent spike in oil prices and a ramping up of Saudi oil production to compensate for stoppages in Libya (although this production rise will probably be smaller than originally envisaged). As a result, we expect the fiscal account to return a wide surplus this year, of 10.4% of GDP. However, Saudi Arabia's fiscal performance is likely to deteriorate rapidly in subsequent years, as the knock-on impact of the wage rises, welfare benefits and house-building programme announced this year, combined with steadily falling average international oil prices, is felt. As a result, we expect the fiscal account to record a much smaller surplus in 2012, of just 0.4% of GDP, and to return deficits equivalent to an average of 6.4% of GDP in 2013-15.

© 2011 The Economist lntelligence Unit Ltd. All rights reserved
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