September 7, 2011 / 12:58 PM / 8 years ago

UPDATE 1-Qatar hikes state salaries, pensions

* Boost seen as attempt to preserve domestic stability

* Inflationary concerns muted - analysts

* Economy expected to surge 18 percent this year (Adds comments from analysts, background)

By Regan Doherty

DOHA, Sept 7 (Reuters) - Qatar will hand out significant salary, pension and benefits increases for its state and military employees costing as much as 30 billion riyals ($8.24 billion), a move seen as an attempt to help preserve stability in the wealthy Gulf Arab state.

The decree will boost basic salaries and social benefits for state civilian employees by 60 percent. Military staff of officer rank will receive a 120 percent increase in basic salaries and benefits, with other ranks getting a 50 percent rise, according to the statement released late on Tuesday.

The total salary increases will amount to 10 billion riyals ($2.75 bln) per year, the statement said, without giving a reason for the rises. In March neighbouring Saudi Arabia began distributing $37 billion in social benefits amidst the popular unrest that has spread across the Arab world.

Unlike neighbouring Gulf countries, Qatar has been notably free of the unrest. The world’s richest nation per-capita (more than $88,500 according to the IMF) its copious natural gas reserves have quickly elevated it to the list of the world’s richest nations.

The tiny Gulf state also played a major role in overthrowing Muammar Gaddafi in Libya.

The increase, ordered by deputy Emir and heir to the Qatari throne Sheikh Tamim bin Hamad Al Thani will likely boost his image and popularity within the country.

“There is no seething mass of anger or unhappiness with the leadership in Qatar, as there was, to some degree, in Saudi Arabia. So while this measure will obviously please Qatari citizens, it has not been done from a place of weakness,” said David Roberts, deputy director of the Royal United Services Institute based in Doha.

“The government likely wanted to reward the military for their highly unusual efforts in Libya.”

The decree also ordered a 60 percent pension increase for civilian retirees. Military retirees of officer rank will see a 120 percent hike, with ranks eligible for a 50 percent hike.

The Gulf state will make a one time payment of 10 billion riyals towards its pension fund and another 10 billion for retirees’ subscriptions.

“EYE-CATCHING NUMBER”

Concerns about inflationary pressures remain muted despite the substantial pay increases, analysts said.

“It’s an eye-catching number, but it applies to such a small percentage of the workforce that I doubt it will have much impact on overall price trends,” said Simon Williams, HSBC’s chief economist for the Middle East and North Africa.

Qataris constitute about twenty percent of the population of 1.7 million, and only about six percent of the workforce. Inflation returned to the world’s top liquefied natural gas exporter last December after a long period of falling prices.

The move was viewed as unlikely to increase real estate prices, as the property market was already.

“We’ll likely see some inflationary pressure on other goods and services. I would expect to see inflation of about three or four percent in a year or so. Some prices will increase immediately, but others are staggered and will take more time,” a Doha-based economist said, declining to be named.

The move was seen as likely to put pressure on the competitiveness of the private sector.

“The cost of living has increased substantially in recent years, so the pay rise could be seen as long overdue. But Qatar needs to encourage locals to enter the private sector workforce, and this is counter-productive in terms of developing the skills and know-how of the Qatari workforce,” another Doha-based economist said.

Qatar’s economy was expected to surge 18 percent this year, with the government planning to spend over $125 billion in the next five years on construction and energy projects.

$1 = 3.642 Qatar Rials Additional reporting by Praveen Menon, Editing by Dinesh Nair and Matthew Jones

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