Riyadh to pay off multibillion-dollar private-sector debts

Riyadh to pay off multibillion-dollar private-sector debts
Saudi Arabia has accumulated a huge budget deficit due to dwindling oil prices, but plans to pay off debts using funds accumulated from budget surpluses from previous years.
3 min read
11 November, 2016
Delayed payments to the private sector are set to start "as soon as possible" []

Saudi Arabia’s government has allocated 100 billion riyals ($26.7 billion) in order to pay debts that it owes to private sector companies following pay delays that have lasted for months, according to an official document seen by Reuters.

In order to curb a huge budget deficit caused by dwindling oil prices, Riyadh has slashed spending and either reduced, or suspended payments owed to companies including construction firms, medical establishments, and foreign consultants originally employed to help design economic reform programmes.

However, the payment delays have caused considerable damage to some companies, and slowed the Saudi economy.

Seeking to redress the balance Riyadh has said it will make all delayed payments by the end of the year. While authorities have not disclosed the total cost of the unpaid bills, analysts have estimated they could stretch to tens of billions of dollars.

The official document, which was issued by Saudi Arabia’s finance ministry marked “urgent” and sent to all government agencies, states that a royal decree has mandated the minister of finance to “take the necessary procedures to pay all delayed payments by the end of the current fiscal year.”

The document states that money to pay off the private sector debts has been accumulated from budget surpluses from previous years and that “payments should not exceed 100 billion riyals”, additionally calling on government agencies to register payment orders at a new specially designed finance ministry website set to go live in the next three weeks.

A potential 100 billion riyal pay out before the end of the year would surpass the expectations of many analysts and would suggest a larger deficit than originally estimated, totalling as much as 250 billion riyals ($66.7 billion).
The government’s initial budget plan for 2016 predicted a deficit of 326 billion riyals, after a record deficit in 2015 of 367 billion.

On Thursday, Saudi Finance Minister Mohammed al-Jadaan said that the government aims to make all of the delayed payments to the private sector “as soon as possible”.

One company likely to be relieved by the developments is Saudi construction firm Saudi Oger which is said to owe as much as $800 million in unpaid salaries, end of service benefits to employees, in addition to sub-contractors and banks. In September, Reuters reported that the Saudi government owed Oger around 30 billion riyals ($8 billion) for work it had completed in the Kingdom.

Notably on Friday the Lebanese daily Al-Akhbar cited an internal circular memo from Saudi Oger’s human resources team thanking employees for “standing side by side with the company in an ordeal” that led to the late payment of salaries “for more than a year”, adding that the company was now in a position to begin paying back unpaid salaries and settle service benefits for some employees.