Saudi Arabia has pledged to clear outstanding payments to private sector companies by the end of the year just weeks after selling a US$17.5 billion bond.
The move will be welcomed by construction companies and other suppliers that have been crippled by payment problems and forced to lay off thousands of workers after more than two years of sliding oil prices.
The plan was approved by the economic and development affairs council at a meeting on Monday night, the Saudi Press Agency reported.
The sharp decline in the price of oil since the summer of 2014 has hurt the region’s largest economy as projects have ground to a halt and companies have been forced out of business.
Brent crude has fallen from a peak of $115 per barrel in June 2014 to about $46 on Tuesday. Regional economies have been forced to slash spending amid rapidly rising budget deficits.
A statement said that the council produced “a package of solutions and procedures for the settlement of dues” to be completed before the end of the current fiscal year.
It also plans to launch an electronic platform to automate payments and boost transparency.
“The council also reviewed the actions and initiatives that aim to alleviate the effects of the measures to rationalise and review expenses,” the statement said.
Saudi Arabia broke emerging market records with a $17.5bn bond sale last month. It is a key part of a massive economic reform programme aimed at weaning the economy off its dependence on oil, slashing subsidies and putting thousands of young unemployed Saudis to work.
That has taken its toll on economic growth, which slowed to about 1.4 per cent in the second quarter of 2016, according to Capital Economics.
The council meeting held at the Al Yamamah Palace in Riyadh on Monday night was overseen by deputy crown prince Mohammed bin Salman, who has spearheaded a slew of economic reforms and austerity measures under the kingdom’s National Transformation Plan.
The payment pledge is expected to relieve huge pressures that have been building within the kingdom’s construction sector that has been dominated by a few major contractors including Saudi Bin Ladin Group and Saudi Oger.
The vast Banban labour camp on the outskirts of the capital was once home to some 15,000 labourers, but their number had fallen to about 2,000 in May according to workers interviewed by The National at the site.
International contractors with operations in the country were hopeful of a rebound in activity even before this latest announcement helped both by improved liquidity following the kingdom’s mammoth bond sale, which broke emerging market records, as well as expectations of an improving oil price.
ABB, the Swiss engineering company which has a large order backlog in the kingdom, expects contracting activity to pick up.
“We think that the market will start to come back in 2017,” said Frank Duggan, who leads ABB’s Asia, Middle East and Africa regions in a November 3 interview in Dubai. “While it’s been a bad third quarter in Saudi, we start to see in the second half of 2017 that the activity starts to come back. Even in the fourth quarter we have seen the Saudis place some contracts with contractors and that of course will pass on into base orders for us.”
scronin@thenational.ae
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