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29 March 2024

Saudi King's initiative is 'step on right track'

Published
By Nadim Kawach

A massive social welfare programme announced this week by King Abdullah of Saudi Arabia for citizens is a step in the right direction but the world’s dominant oil power needs to take more measures to satisfy its people, a key Saudi bank has said.

Although the plan, which will cost the state nearly SR135 billion ($37bn), targets better living standards for low and medium income people, the government needs to embark on more initiatives to meet the sociopolitical needs of people  amid spreading unrest in the Arab region, Banque Saudi Fransi (BSF) said.

In a five-page comment on King Abdullah’s initiative, announced on Wednesday upon his return from a three-month treatment trip, BSF said a surge in crude prices above $100 because of unrest in OPEC crude oil producer Libya would enable Saudi Arabia to implement its most ambitious social welfare plan in recent years.

“The measures taken this week are on the right track toward addressing economic desires of Saudi citizens…. However the government will need to continue gauging popular sentiment as citizens across the region seek political reforms and development of civil society institutions,” said BSF chief economist John Sfakianakis.

“Challenges this year will involve tackling head-on key economic concerns, most prominently, employment generation, housing, the rising cost of living and moderating disposal incomes.”

The study said the measures announced by the Saudi Monarch, including a pledge to provide unemployed nationals with financial support for one year and write off a series of loans – is an “endeavour to support citizens as regional popular unrest acts as a lever for expediting crucial social and economic reforms.”

With US oil prices reaching 2-1/2-year highs of more than $96 a barrel and Brent crude climbing to more than $106 a barrel this week amid a popular uprising in Libya, Saudi Arabia can “comfortably finance social policies designed to ease the burden of high property prices and housing market imbalances, while helping its young population  cope with a mounting unemployment challenge.”

Sfakianakis said The 19 orders released by King Abdullah would cost the country about SR135bn, adding that the sum is more than double the 2008 plan of SR66bn, which had at the time been formulated to alleviate the impact of soaring inflation.

In new measures on Wednesday, the kingdom said it would introduce an unemployment benefit, the first of its kind in the kingdom, providing wages for one year to jobless Saudis searching for work. The government did not say how much each unemployed person would be eligible to receive but BSF estimated it would involve a benefit of SR1,200-SR1,500 a month.

Its figures showed there were nearly 448,547 unemployed Saudis at the end of 2009, for an unemployment rate of 10.5 per cent.

“Youth stand to benefit the most from the scheme… joblessness among Saudis below the age of 30 was 27 per cent in 2009, including 39.3 per cent of youth aged 20-24 without work,” it said.

“The initiatives announced appear to target a comprehensive range of concerns among Saudi citizens and lend support particularly to those in lower income brackets who would benefit tremendously from an expansion in social security benefits.”

The study noted that the government made firm calls for housing projects to be accelerated and the real estate development fund to speed up its lending process.

“The government must continue to make targeted efforts to entice and support those most in need of assistance,” Sfakianakis said. “Offering financial support for unemployed youth is a step in the right direction, although as we argued in a report last week entitled ‘Employment Quandary‘, jumpstarting private sector job creation will be the key to resolving the unemployment dilemma.”

He noted that at present, only one out of every 10 employees working for a Saudi private sector company is a Saudi citizen.

“The public sector can no longer act as the employer of last resort for Saudis. Saudi Arabia has to exit from the comfort zone of offering low-paid and low-incentive public sector employment,” he said.

“The urgency to improve this situation is apparent – the king called for the formation of a committee of ministers to study the unemployment problem and report to him within four months…it remains to be seen if the reforms will rectify comparatively low Saudi labour force participation of around 36.7 per cent. It is also unclear whether unemployment benefits will be coupled with job searching facilities to reduce the risk of manipulation and avoid creating a new class of unemployed beneficiaries.”