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Saudi king restores state employee bonuses as overhaul broadens

King Salman restored bonuses and allowances for Saudi state employees, appointed one of his sons as ambassador to the US and promoted another within the energy ministry, in the latest spate of decrees aiming to bolster economic growth and reorganise the government.

The king said that the bonuses were restored as revenue increased and the budget deficit declined, according to decrees carried by the official Saudi Press Agency late on Saturday. He replaced the commander of the land forces and ordered the Ministry of Finance to pay a two-month salary bonus to Saudi forces serving on the front lines with Yemen.

Prince Abdul Aziz Bin Salman, a son of the king, was named Minister of State for Energy Affairs, while Prince Khalid Bin Salman was appointed ambassador to the US.

The broader overhaul to the government comes as Saudi leadership confronts a slowing economy and a prolonged war in Yemen, and seeks to reset ties under President Donald Trump after a frosty relationship with the Obama administration. The drop in oil prices as well as austerity measures have caused the worst economic slowdown since the global financial crisis.

Better results

The decision could help bolster consumer spending and revive growth. The International Monetary Fund expects growth to slow to 0.4 per cent this year from 1.4 per cent in 2016. The Tadawul Consumer Services Index has dropped 15 per cent this year, compared with a 4 per cent-decline in the benchmark gauge.

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“The incremental increase of public sector workers’ disposable income will help to further boost positive sentiment as domestic demand recovers,” Mohammad Al Shaikh, minister of state and a member of the cabinet, said in a statement to Bloomberg.

Spending cuts over the past two years “have resulted in better than forecasted revenues and reduction in expenditures for the government budget,” he said. Saturday’s announcement “comes in the wake of the considerably better-than-anticipated budgetary performance in the first quarter, which is driven by strengthened expenditure management and higher revenue inflows,” he said.

“As a result, the actual deficit for the first quarter of 2017 is about 50 per cent of the projected deficit in the budget due to increases on revenue side and decreases on expense side.”

It wasn’t immediately clear whether the decision would affect plans to reduce the budget shortfall by 30 per cent to about 200 billion riyals (Dh195.8 billion, $53 billion) for the entire year. Finance Minister Mohammad Al Jadaan told Bloomberg on Thursday that the government was on track to meet its target.

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The king in September cancelled bonus payments for state employees and cut ministers’ salaries to trim a budget deficit that ballooned to about 15 per cent of gross domestic product. The previous decision was made at a time that revenue was severely reduced by the oil price rout, the royal order said.

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The policies are part of a plan to repair public finances and reduce the economy’s reliance on oil — efforts spearheaded by Deputy Crown Prince Mohammad Bin Salman, the king’s son and second-in-line to the throne of the world’s biggest oil exporter.

The prince is also the defence minister, making him the top official in charge of the war in Yemen, where the kingdom is seen fighting a proxy confrontation with regional rival Iran.

Saudi Arabia intervened in Yemen in March 2015, leading a coalition that’s carried out intensive air strikes and deployed a limited number of ground troops as it tried to halt gains by Shiite Houthi militants aligned with Iran.

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