Expats in Saudi to bear brunt of inflation hikes

If you’re about to head for Saudi Arabia on reassignment, this report by a UK-based economics consultancy may give cause for concern.

Analysts at Capital Economics have reported expats in Saudi Arabia will be hit hardest by rising inflation. Hikes in the cost of power and fuel as well as the recent introduction of VAT will affect expat budgets far more than those of Saudi citizens as they will be shielded by cost of living allowances. Public sector employees and those in the military are unlikely to feel any effects from rising prices in the near future.

An announcement late last week pointed out several fiscal measures taken to ensure Saudi citizens weren’t affected by price hikes and may even, as in the case of public sector workers, see a net gain in contrast to the losses faced by expat households. The report predicted the Kingdom’s inflation rate was expected to rise by over six per cent during 2018, dwarfing the 3.4 per cent estimate made by local economists.

Most of the inflationary upswing will be the result of rises in electricity and fuel prices, with fuel at the pump now 127 per cent dearer than previously. Low-consumption electricity tariffs, used by the majority of households, have risen by 260 per cent, with VAT expected to add some 2.5 per cent to the rate of inflation. Also causing concern is the broadening and increased amounts of the expat levy, with workers now facing paying up to 400 riyals every month for the privilege of working in the kingdom. At the same time, the monthly dependents’ fee is now 200 riyals as against its previous 100 ryals.

On the other hand, allowances for Saudi nationals including soldiers, civil servants and other government employees is expected to increase average wages by 10 per cent, mitigating the hike in inflation. Further price increases are on the way, but are expected to be lower than the first stage, especially in the case of gasoline. Forecasters believe inflation will begin to fall during 2019, and will end up at slightly lower than two per cent.