Saudi Arabia to Clear Delayed Payments by End of the Yearby and
Kingdom delayed payments to contractors as deficit widened
Project review, reschedule saved ’tens of billions’ of riyals
Saudi Arabia will settle all delayed payments to private businesses by the end of the year as it concludes a review of government projects that has saved tens of billions of riyals.
The Council of Economic and Development Affairs approved the plan at a meeting late on Monday, the official Saudi Press Agency reported. The council authorized payments to begin immediately, the news service said, without giving further details on the size of the arrears.
"It’s what everyone has been waiting for as it’s so critical for the functioning of the economy," said John Sfakianakis, director of economic research at the Gulf Research Center. “The lack of clarity on these payments dampened confidence and increased uncertainty about growth prospects.”
Saudi Arabia has also reviewed hundreds of contracts, rescheduling some and amending others, the press agency said. The government stopped plans to award projects valued at one trillion riyals ($267 billion), a level of spending that “was not commensurate to the economic and developmental return,” it said.
The world’s biggest oil exporter halted payments to contractors last year as it sought to rein in a budget deficit that reached about 15 percent of gross domestic product. Authorities have also rolled out a package of austerity measures, including cuts to public sector wages and energy subsidies. Economic growth is expected to slow to 1.3 percent this year, according to a Bloomberg survey of economists, the lowest level since the 2009 global recession.
Thousands of low-paid foreign laborers employed by construction companies like Saudi Oger and the Saudi BinLadin Group were left stranded in labor camps after the government stopped project payments. Nearly 16,000 from India and Pakistan were abandoned, their governments said in August.
The commitment to settle arrears is “important,” said Mohammed Al Suwayed, the Riyadh-based head of capital and money markets at Adeem Capital. “Now that it’s official, of course it’s going to put the markets to ease, and going to increase trading hopefully.”
The benchmark Tadawul All Share Index was up 2 percent at 11:47 a.m. in Riyadh, trimming this year’s loss to 8.7 percent.
The announcement comes after the kingdom raised $17.5 billion from a bond issue last month, the largest from an emerging-market nation.