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Saudi employee bonuses back despite proposed wage bill cuts?

As part of Crown Prince Mohammad bin Salman’s (MBS) Vision 2030 plan, he had revealed plans in 2016 to reduce public-sector wages to 40% of spending by 2020, from 45% at the time. As part of this move, King Salman had suspended government employee bonuses in the wake of the oil price slump during the same year as part of austerity measures.

Fast forward 2 years later, and King Salman has reinstated these bonuses, with plans to begin issuing them again at the beginning of 2019. If Saudi hopes to cut their wage bill spending, why would they reinstate these financial rewards?

Renewed financial confidence?

At the Future Investment Initiative summit last month, often known as “Davos in the Desert,” Crown Prince MBS said that Saudi could cut its public wage bill to 45% of the kingdom’s total budget next year in 2019.

“The rate of spending, the capex is increasing and the salaries are decreasing,” he said at the event. “Three years ago, the rate of salaries to the budget was 50% we expect it next year to be 45% spending is increasing.”

Since 2016, it seems that the rate of salaries to budget had increased notably instead of decreasing, if the hope to drop the percentage to its original 45% next year.

In the years after their announcement in 2016, a lot has transpired. The oil market made a recovery from its disastrous $30 per barrel price. Currently, Brent crude is settling around $72, following a resurgent rise to $86 last month. This happened as a result of decreased supply fears in anticipation of the US sanctions against Iran that came into effect this week. Following Trump’s Iran trade waivers to certain countries like Japan and South Korea, it has become apparent that the oil market might be safe from a spike in prices after all, which led to Brent value settling around the $72 mark, and WTI around $61.

It seems that Saudi has found renewed confidence. Should there be a deficit in oil supplies worldwide as a result of Iranian absence, oil prices will rise, further boosting the Saudi economy. Should the Kingdom pitch in to make up for the lost crude production, they will balance the oil price while boosting their sales. It seems this case of a win-win scenario has bolstered Saudi faith in their future prospects, and pushed them to reward their public sector employees once more.

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How is Vision 2030 doing?

As the long-reaching arm of Vision 2030, the Public Investment Fund (PIF), Saudi’s sovereign wealth fund, has been fervent about diversifying the Kingdom’s investments. The Fund has secured investments in all kinds of sectors and business projects, from tech companies such as Uber and Tesla, to acquiring a 38% stake in South Korea’s Posco Engineering & Construction Co. in 2015, to funding local e-commerce companies like Noon.

Currently, the PIF’s most ambitious project is the NEOM megacity project, a $500 billion beast of an investment.

Among the reforms proposed by the Vision 2030 plan, Saudi women have finally been allowed to drive following a decades-long ban.

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Some difficulties remain, however, particularly with jobless nationals.

Saudi has also sought to reduce unemployment among its nationals with schemes such as Saudization to solve this endemic issue. Bloomberg reports, “The jobless rate for Saudi citizens has increased to 12.9%, its highest level in more than a decade, from 11.6% at the time announced the economic overhaul in 2016. The plan’s targets of 9% unemployment by 2020 and 7 percent by 2030 appear far off.”

The decision to reinstate bonuses for government workers is certainly an encouraging one for prospective government employees.

We should have a clearer image of how unemployment in the Kingdom will shape up by next year, and how the bonuses will shape the public sector.

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