Saudi's anti inflation plan

The Saudi Arabian government has stated that their $21 billion anti-inflation plan is designed to fight the inflation in the Saudi economy (including the property sector), but not for at least another three years.

Jadwa Investment's monthly bulletin released in February covered several notable topics, however the main issue was in regards to Saudi Arabia's 17-point plan to reduce the overall impact and effects of inflation in the country. According to the Riaydh-based firm, the government's plan is going to cost an approximate SR13.5 billion in supplemental spending and then a total of SR67 billion throughout the following three years.

This considerable amount of spending will not substantially affect the government's public finances, largely because the budget surplus is projected to reach SR187 billion by the end of this year.

In reference to a recent splurge in raises given to state employees, head of research and chief economist at Jawda Brad Bourland recently stated "The public sector pay rise is unlikely to prove too inflationary and the reduced fees and charges and other measures will not have a pronounced impact on the overall inflation rate."

With the announcement of a 5% salary raise scheduled for both 2009 and 2010, the Saudi Arabian government seems to be indicating that it is predicting that inflation levels should remain consistent for the next three years, at least that's what the Jawda report suggests. The Jadwa report also reported that nearly SR170 billion in wages were paid out by the Saudi government in 2007. In 2008, after a 5% increase in wages, the pay out would be an additional SR8.5 billion. Following the two subsequent pay increases of 5% per year in 2009 and 2010, the total package would have added an additional SR52 billion by the time 2011 arrives.

The government has also implemented a 50% reduction in port fees such as those attached to driver’s licenses, passports, and title transfers. Even with all of these measures being undertaken, Bourland stated, "The new government measures will have a broadly neutral impact on inflation. The public-sector pay rise is below the current rate of inflation and is therefore unlikely to have much impact on inflation."

While many property investors might have been hoping optimistically that these efforts would do much more to curb the effects of inflation, it does not appear that these 'fixes' are enough to compensate for the fundamental issues of the economy. However, many property investors continue to see opportunities in the region regardless.

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