Question

Discussion Board 2: Topic: “Saudi Government support for the private sector employees during COVID-19 pandemic has resulted in reduced layoffs”.  Discuss

*Please write your own word not copy from other resources

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Answer 1

Introduction: -

The Covid 19 Pandemic has become one of the worst economic nightmares for most countries and economists alike. It has resulted in a deep recession across most countries in the world as the aggregate or total demand for goods has fallen sharply as people remain indoors to prevent them from catching the disease.

The Saudi Arabia is a prime exporter of crude oil and as people remained indoors, the prices of crude oil have been falling sharply. The end result of this is that producers will make long term losses and to recover the same would reduce the number of people they have hired and this further would lead to unemployment in the economy.

There is a similar trend all across the globe with developed nations such as the United States showing negative growth of as much as 30% approximately in the last quarter.

To ease out this situation, the government of Saudi Arabia has announced numerous programs for employees in the private sector these are listed as follows.

Case Details: -

Now looking upon the major steps which the Saudi Government has taken to ensure that it can help the people of the country survive and reduce unemployment in the country significantly, the following are the measures undertaken by the government.

1) Postponement of Government Dues: -

The government of Saudi Arabia has allowed for the private sector to delay dues such as taxes which it periodically collects from private players to be paid in instalments later on to the tune of approximately 18-20 Million US Dollars. What this does is that companies temporarily have higher capital availability and instead of giving away money to the government this can be reinvested and can be provided to people in the form of salaries, thus avoiding mass layoffs in the country.

For example, if a company’s total expenditure towards taxes is 10,000 US Dollars per month, this due is to be given later and the same can thus be utilized towards business functions which will continue to generate employment and thus layoffs can be avoided.

2) Enhancing Banking Liquidity: -

The government has directly announced programs which allow the banking system to provide up to 20 million US dollars to the banking sector which can be extended as loans to private players. As private players get loans at a cheaper interest rates, their cost of operations go down and their capital availability remains the same.

This then translates into private players having suitable amount of capital to prevent layoffs in mass numbers. When private players are equipped with sufficient capital it does not prompt them to fire people to meet their expenses, they may avail cheap loans to keep the same level of production as they would before thus keeping unemployment in check.

Also, since banking loans are availed by private individuals also, this would mean that the demand for goods and services would be created as loans are cheaper and people would find it easy to avail credit facilities. As the demand would increase, producers would increase production and unemployment levels in the economy would be lowered down significantly.

3) Wage Subsidies: -

The government of Saudi Arabia has also included a program for providing wage subsidies to the private sector to as much as 60% of the total wage of a private sector employee. This is for a period of 3 months wherein the private employees are provided the much-needed relief required to regulate the industry.

This period of relief would ensure better working conditions and longer tenure of people and employers would have higher flexibility of not firing people from jobs immediately thus delaying or stopping layoffs as far as possible. The upper limit for this scheme however is about 2.5 Billion US Dollars which means that the government would only spend this much towards ensuring the same.

4) Delayed Tax Payment for Private Individuals: -

Tax payers in Saudi Arabia are allowed to delay their tax payments by as much as 31st December 2020. This provides an additional supply of money to common people which they will use in the markets to increase their demand for goods and services.

As this happens, people spend increasing amounts which give private players support and profits. As profits would rise, this would help in avoiding layoffs as far as possible

For example, if a person’s total income is 100$ and his tax payable is 20$ today, then extending this payment to December 2020 would allow the person to spend the same towards other products which would increase production and therefore help in reducing unemployment since people would always be required in the production process.

5) Utility Bill Reduction Program: -

Private players pay a lot of money towards electricity consumption and payment of other utilities which it avails from the governments.

To reduce the cost of operations and to ensure that companies have enough money to pay to their operating staff, the utility bills were reduced as much as 30 % in the country for up to 2 months this has largely been able to control the costs for the worst phases when demand was extremely low.

Conclusion: -

The government of Saudi Arabia has had 2 major tasks to do during the pandemic one is to increase the demand or to keep it as stable as possible and on the second hand is reducing the cost of operations for private players.

Both of these are aimed at reducing the impact of the recession and ensuring that there is sufficient employment in the country.

Demand creates products and reduces unemployment. Therefore, plans as listed above help in reducing burden on employees or generally is a technique which reduces employer contribution and costs thus helping them keep the same employee level.

We can conclude by saying that the government of Saudi Arabia has taken keen interest in helping people and ensuring that the layoff levels can be as low as possible by reducing the amount of money which people pay as taxes or the overall cost of operations for business owners.