Saudi Arabia slashes advanced payments

21 January 2016

Finance Ministry has reduced payments and also specified they should not exceed SR50m

Saudi Arabia’s Finance Ministry has slashed advance payments to contractors to 5 per cent.

The government usually pays 20 per cent of the contract value in advance to firms working on public schemes.

A circular issued by Finance Minister Ibrahim al-Assaf reduced advance payments and also specified they should not exceed SR50m ($13.3 m) each, the Saudi-based Al-Hayat newspaper reported.

The move comes as the government looks to significantly cut state spending in order to counter the decline in oil prices.

In the 2016 budget the Finance Ministry announced cuts to infrastructure spending of more than 60 per cent.

The drop in spending from SR63bn ($17bn) in 2015 to SR23.9bn in 2016 will mean that progress on the largest projects on which contracts were due to be awarded this year will be slow.

Saudi construction firms will not welcome the news as limited spending, high labour costs and delayed payments are already putting pressure on their finances. On 20 December MEED reported that Saudi Arabia’s s Abdullah A.M. Al-Khodari Sons recorded a net loss in the fourth quarter of 2015, citing declining revenues and increased financial charges for the poor performance.



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