Saudi Cost Cutting Drive: $20 Billion of Projects May Be Axed

EghtesadOnline: Saudi Arabia is weighing plans to cancel more than $20 billion of projects and slash ministry budgets by a quarter to repair finances squeezed by low oil prices, people familiar with the matter said -- efforts that analysts expect to slow economic growth.

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07 September 2016

The government is reviewing thousands of projects valued at about 260 billion riyals ($69 billion) and may cancel a third of them, three people said, asking not to be identified as the discussions are private. The measures would impact the budget for several years and may include transport, housing and healthcare projects, according to two of the people. The government plans to carry out the review within six months, they said.

A separate plan includes merging some government ministries and eliminating others, two people said, also speaking on condition of anonymity, reports Bloomberg.

Under deputy Crown Prince Mohammed bin Salman, the world’s biggest oil exporter has taken steps to rein in a budget shortfall that ballooned to 16 percent of gross domestic product last year, the highest among the world’s biggest 20 economies. The government has delayed payments owed to contractors and started cutting fuel subsidies. The prince also plans to sell a stake in oil giant Saudi Arabian Oil Co., or Aramco, and create the world’s biggest sovereign wealth fund.

The International Monetary Fund expects the shortfall to drop to below 10 percent of GDP in 2017.

Short-term Strategy

“The revenue and economic diversification strategy being pursued will only start to yield results over the medium- to long-term,” Raza Agha, VTB Capital’s chief economist for the Middle East and Africa, said by e-mail. “In the short term, it is a question of living with lower oil prices by cutting some capital spending, and financing what’s left via debt sales and drawing down foreign reserves.”

The Finance Ministry declined to comment, while officials at the Ministry of Economy and Planning weren’t available for comment when contacted by Bloomberg.

Authorities set up the National Project Management Office last year to control capital spending and ensure that government projects are carried out efficiently. The office will oversee similar bodies, being created in ministries, municipalities and state entities to ensure infrastructure projects are executed on time and within budget.