Saudi Arabia is delaying payments to government contractors as the slump in oil prices pushes the country into a deficit for the first time since 2009, according to three people with knowledge of the matter.
Companies working on infrastructure projects have been waiting for six months or more for payments as the government seeks to preserve cash, the people said, asking not to be identified because the information is private. Delays have increased this year and the government has also been seeking to cut prices on contracts, the people said.
Saudi Arabia is responding to the decline in crude, which accounts for about 80 percent of revenue, by tapping foreign reserves, cutting spending, delaying projects and selling bonds. Net foreign assets fell by about $82 billion at the end of August after reaching an all-time high last year. The country has raised 55 billion riyals ($15 billion) from debt issuance this year.
‘It’s hard to hold back from boosting spending when oil is on the rise, but very hard to cut when oil prices fall,’ Simon Williams, chief economist for central and eastern Europe, the Middle East and North Africa at HSBC Holdings Plc, said in e-mailed comments. ‘Cuts are coming – the budget deficit is too large to ignore and pretend it’s business as usual.’
This post was published at David Stockmans Contra Corner on October 19, 2015.
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