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Fri 11 Nov 2016 02:04 PM

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Saudi Arabia sets aside $26.7bn to settle private sector arrears

Payment delays have seriously damaged some private sector players, particularly in the construction industry

Saudi Arabia sets aside $26.7bn to settle private sector arrears
Vehicle light trails pass the Kingdom Tower on King Fahad Road in Riyadh, Saudi Arabia, on Monday, April 9, 2012. Saudi Arabias gross domestic product expanded 6.64 percent in the fourth quarter from a year ago, the kingdoms statistics agency said. (Bloomberg)

 Saudi Arabia's government has set aside 100 billion riyals ($26.7 billion) to pay debts that it owes to private sector companies after payment delays that have lasted months, an official document seen by Reuters shows.

To help curb a huge budget deficit caused by low oil prices, the government of the world's largest oil exporter has slashed spending and reduced or suspended payments that it owes to construction firms, medical establishments and even some of the foreign consultants who helped to design its economic reforms.

But the payment delays have seriously damaged some companies, slowing the economy, and earlier this week the government said it would make all delayed payments by the end of this year.

Authorities have not disclosed the total size of the unpaid bills, but private analysts have estimated they may total tens of billions of dollars.

The document, labelled urgent and issued by the finance ministry for transmission to all government agencies, says a royal decree has mandated the finance minister "to take the necessary procedures to pay all delayed payments by the end of the current fiscal year".

"Payments should not exceed 100 billion riyals," the document adds, saying the money will come from budget surpluses accumulated in previous years. It does not say whether the government expects actually to pay out all of the maximum allocation of 100 billion riyals.

Government agencies should register payment orders at a finance ministry website created for this purpose within three weeks, the document says.

Finance Minister Mohammed Al Jadaan reiterated on Thursday that the government intended to make all delayed payments to the private sector "as soon as possible", estimating these payments could total a "significant amount of billions" of dollars.

The government's original budget plan for 2016 envisaged a deficit of 326 billion riyals, after a record deficit of 367 billion riyals in 2015.

Local analysts have been forecasting this year's deficit, expected to be announced late next month along with the 2017 budget plan, will be smaller than the original projection by a large margin.

A 100 billion riyal payout by the end of this year would exceed the expectations of many analysts and could result in a larger deficit than they have been forecasting, perhaps around 250 billion riyals or more. 

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