Saudi Finance Minister’s $26.6 Billion Economic Plan: Transcript

(Bloomberg) --

Saudi Arabia’s Finance Minister Mohammed Al-Jadaan says the $26.6 billion measures announced early on Monday are aimed at helping put public finances in a position to support the economy as it emerges from lockdown.

Following are excerpts of a telephone interview with the minister.

On why the measures were taken now:

We looked at a lot of options and their impact economically, financially and socially. What we have seen from the announced measures are the ones that the team, both economists and other experts, thought would be the least damaging to the economy and the fiscal strength of the country.

Despite all that is taking place around the world, we are committed to continue our reform, we are committed to ensuring that we have the fiscal strength and maintain our reserves, maintain our fiscal buffers, so that as we get out of COVID-19 we have the tools to support the economy.

These are the priorities: the health care of people and the livelihood of people, and we want to make sure that we maintain our fiscal strength so that as the economy gets out of the lockdown, we are able to support the economy.

We are not cutting spending, we are reallocating spending. So, what we would end up with as we are now, we would end up with spending almost as budgeted because of the increase in spending that we have allocated both to support the economy and the private sector and the jobs of Saudi employees in the private sector.

Also because of the significant resources that we have put into the health-care sector, not only to treat nationals but also to treat expats, who make up 85% of the Covid-19 cases in recent days.

This is an unprecedented case and each country has its own circumstances and its own strengths that it uses to support its economy. While, for example, you’ll see in the West the heavy employers are the private sector, so the government is spending a lot of money because those in the private sector are losing their jobs.

In Saudi Arabia, the government is still the largest employer, and government employees are continuing to be employed, and we are supporting the Saudi workforce to ensure that the private sector keeps them employed. Each country is different and therefore they need different tools.

On the VAT increase:

It is something that will help this year, but will help more next year and the year after as we get out of the COVID-19 crisis.

We are not increasing revenue now because there is no spending anyway. People are not spending as much as they used to spend because of the lockdown. As we get out of this, the government will be here to support the economy, support the private sector to ensure that they are not out of business during this period.

On subsidies:

In terms of the citizen’s account, which caters to the low-income part of society, that is continuing.

As to the cost of a living allowance, we had announced before that that is temporary, so we thought that we can actually stop. Its impact is very limited.

The other subsidy reform that we started is continuing. Gasoline is 100% linked to the benchmark price. Because the benchmark price has fallen, we announced last night that we are reducing it and it will continue to be benchmarked against the benchmark price which is linked to the international price. It will be adjusted on a monthly basis.

Saudi Finance Minister’s $26.6 Billion Economic Plan: Transcript

On the borrowing plan:

I don’t think we will be increasing that. As we look at the current fiscal situation, we think that 220 billion riyals will be sufficient to bridge the gap.

So between the reduction in spending, the efficiencies we are putting into the system, the savings we are making in any case because of the lockdown, because people are not traveling, because we are not training people abroad, because we are not spending on sports activities, entertainment activities and tourism promotion -- there are a lot of savings there in any case.

So I think between that and cutting spending now and a few weeks ago, I think we will manage with 220 billion riyals.

The cuts that we have is government expenditure that is going to be cut anyway because of the lockdown. Projects and operating costs than can be postponed or reviewed. Some of the projects under the Vision realization program and expenditure that can be extended. And some of the megaprojects that are extended because of what is happening around the world.

On cuts in capital expenditure:

Because of COVID-19, a lot of projects are slowing down, and therefore we focused on what projects are going to be impacted anyway because of supply chain issues, labor restrictions.

Some of the Vision programs, we have been working on with the strategic committee over the past few months and weeks to re-prioritize the initiatives under the Vision Realization programs. They have been revamped.

We are planning to spend in some of the projects in housing, in hospitality, a lot of expenditure that is. Some of them are going to continue, and some of them will be postponed and extended to next year and the year after.

Other projects, like the holy city in Mecca, we had to slow down significantly to ensure that the safety of the labor force was also taken into consideration.

The big projects are continuing as per their schedule, though some had to be extended because of what is happening. Because most are in isolated areas, we managed to put in place the necessary health and safety measures to protect the workers. It may not be as fast as it used to be, but they are continuing. Some of these projects’ infrastructure that was supposed to be built by the government could be extended, whether it is roads, water pipes, etc. based on the new schedule of these projects, some of the infrastructure projects have also been extended, which is like north of 10 billion riyals.

On the role of new committee looking at salaries:

Over the last four years we have created a lot of centers and authorities and programs to ensure that we support the reforms. The result of that, basically, is that a gap was created. A significant gap was created between civil servant salaries and the new government organizations that have been created, in salary scale. This committee is going to look at the salary scales and the benefits of these new entities and bring about more rationalization and ensure that we don’t have excess wages or unnecessary benefits that are distorting the labor market.”

Civil servant and military salary scales are actually very reasonable, we are looking at those who are working for the government, but not under the civil service salary scale.

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