In a recently released note from Ashmore Group, the investment firm estimated new spending announced by King Salman at $32.3 billion, with 80% of that as current spending and $5.3 billion in capital expenditure over several years.
The figure, an estimate, noted that this new expenditure comprises 4.4% of estimated Saudi GDP at $732 billion.
“The majority of the measures are consumption-driven and would have a direct one-off impact,” writes John Sfakianakis, Director of Emerging Markets for the GCC for Ashmore. “The payments are expected to be made over the course of the next four weeks. Such measures are not atypical at the outset of a new monarch’s tenure. They are considered good politics and always positively received by society as a gesture of goodwill by the new monarch.”
Sfakianakis, who joined Ashmore last year, noted that three weeks after King Abdullah ascended to the throne (in August 2005), the new King did the same – announcing a 15% increase in salaries. “Basic salaries at that time had not increased for quite some time. Just like in previous times, the private sector reacted to such measures and many have instituted basic salary increases or parallel monthly basic salary hand outs. This will have an impact for more than two million private sector Saudi employees as well as many expatriates. Caps have been placed as private sector wages are many times over public sector salaries. We estimate the total effect to add 0.78% to real GDP.”
Despite the expense, Ashmore estimates that the spending can be easily sustained by the Saudi government through deep reserves.
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