Commodities, Frontier Markets

Saudi Arabia Launches Austerity Drive To Cut Public Spending

The Saudi government ran a budget deficit of nearly $100bn in 2015 and is now seeking ways to plug the gap left by low price of oil exports

Saudi Cash CrunchSaudi Arabia’s government, its finances strained by low oil prices, is ordering ministries to cut their spending on contracts by at least 5%, a document seen by Reuters shows.

The austerity drive could further slow economic growth in the world’s top oil exporter and hurt the construction industry, where many companies are struggling with deteriorating cash flow and rising labour costs.

The document, sent by the central government to all ministries and state bodies, instructs them to reduce the value of outstanding contracts signed to support their operations, as well as construction contracts included in the 2016 state budget, by “not less than 5 percent of remaining obligations”.

It says these measures were proposed by the minister of economy and planning to “rationalise spending and increase … efficiency”, and were approved by the king. Officials at the ministry could not immediately be reached for comment.

The document leaves ministries to decide how contracts should be revised to make the required savings. It does not explain how the ministries should renegotiate contracts with their suppliers.

Another clause in the document forbids ministries and government bodies from signing any contracts without the approval of the finance ministry. Previously, senior officials could agree small contracts without approval.

The Saudi government ran a record budget deficit of nearly $100bn last year and has been seeking ways to narrow the gap. It is laying plans to boost non-oil revenues with taxes, but that will take years to have much impact, leaving spending cuts as the main way to bring state finances under control.


Courtesy of Guardian News & Media Ltd © 2016

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