JEDDAH: Government employees and non-Saudi government contractors will receive a 15 percent inflation allowance from the beginning of the next Hijrah year, corresponding to Dec. 18, 2009, informed sources said.

Ministries and government departments have already moved the file of government employees to complete the procedures for including the allowance in their monthly salaries, an Arabic newspaper said.

The Council of Ministers, chaired by Custodian of the Two Holy Mosques King Abdullah, approved the inflationary allowance in January 2008 as part of measures taken by the government to counter inflation.

The Cabinet said government employees would receive an allowance of five percent of the basic salary in the first year, 10 percent in the second year and 15 percent in the third year.

The employees began receiving the allowance along with their monthly salaries in Muharram 1429 (January 2008).

The Cabinet adopted a 17-point program to offset the effect of rising inflation and prices in the country. Apart from inflation allowance, the program included a 10 percent increase in social insurance and subsidies for essential products such as rice, baby milk and barley.

Finance Minister Dr. Ibrahim Al-Assaf said the government was spending about SR12 billion annually on direct subsidies. He estimated the additional annual spending at SR10 billion as a result of the payment of five percent inflation allowance and 10 percent additional allocation for social insurance.

The payment of additional inflation allowance comes at a time when a team of economists at Banque Saudi Fransi (BSF) said inflation rates in Saudi Arabai would go up this year by 5.1 percent.

“We expect an inflation of 5.1 percent this year and 4.6 percent in 2010,” said the study authored by BSF’s Chief Economist John Sfakianakis, research analyst Turki A. Al Hugail and analyst Daliah Merzaban.

The study substantiates Saudi Arabian Monetary Agency’s (SAMA) forecast of an inflationary trend published in the media recently.

In July 2008 inflation rates in the Kingdom touched a record high of 11.1 percent as a result of increasing prices and growing worldwide demand for essential commodities. Global economic downturn was instrumental in containing that trend and the inflation rate declined to a two-year low of 4.2 percent in July.