RIAYDH, 26 August 2005 — An economic expert has estimated that the increase in wages is estimated at SR15 billion to government employees over a total base salary of SR100 billion yearly. Dr. Saad Alshiek undermined the inflationary effects of the decision if the increases are limited to the workers in government only.
This is so despite the fact that increasing liquidity necessarily adds to the demand on goods and services and causes a general increase in prices inflation, the Al-Madinah newspaper reported.
The Saudi expert concluded that this increase in prices would be limited, because the increase in prices will be driven by an increased demand not an increase in the costs of production.
The expert counted the positive aspects of the decision of the Custodian of the Two Holy Mosques on the general economic performance in the long term.
These include that increasing prices will encourage private sector companies to higher production. This will increase supply to a higher demand (motivated by the wage increase) and will cause a stabilization of prices at a higher equilibrium.
The expert also predicted that the increase would result in the long-term flourishing of the economy. This will happen through the creation of more jobs and a resultant increase in demand. This increase in demand will, in turn, result in an increase in production. This will widen the circle of investments, growth and economic development. Companies will be able to absorb the higher salaries through expansion and added production.
The Saudi expert concluded that prices would increase in the short term, but that expanded production will lower prices in both the short and long terms. Strategically, the decision has a human aspect in aiding citizens and a political and social aspect in meeting the expectations of citizens after oil price increases. The higher oil price makes the government capable of affording wage increases.
The expert asserted that the decision would have economic and strategic avenues through increasing the pace of economic activity especially when fiscal policy is hampered (there are no taxes in Saudi Arabia). The government is capable of covering the added expenses including the future burdens of the decision on the national economy.
