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Saudi Orders Cut in Contract Spending
World Economy

Saudi Orders Cut in Contract Spending

Saudi Arabia’s government, its finances strained by low oil prices, is opening a fresh austerity drive by ordering ministries to cut their spending on contracts by at least 5%, a document seen by Reuters shows.
The spending cuts 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 labor 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% of remaining obligations”.
It says these measures were proposed by the minister of economy and planning to “rationalize spending and increase its efficiency”, and were approved by the king.
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 $100 billion 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.

  Seeks Foreign Loans
Saudi Arabia is seeking a bank loan of between $6 billion and $8 billion, sources familiar with the matter told Reuters last week, in what would be the first significant foreign borrowing by the country’s government for over a decade.
Riyadh has asked lenders to submit proposals to extend it a five-year US dollar loan of that size, with an option to increase it, the sources said, to help plug a record budget deficit caused by low oil prices.
Last week, Reuters reported that Saudi Arabia had asked banks to discuss the idea of an international loan, but details such as the size and lifespan were not specified.
The government is currently bridging the gap by drawing down its massive store of foreign assets and issuing domestic bonds. But the assets will only last a few more years at their current rate of decline, while the bond issues have started to strain liquidity in the banking system.

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