Saudi Arabia to cut project spending amid low oil prices

07 September 2015

Finance minister says Riyadh working on “cutting unnecessary expenses”

  • Kingdom to focus on main development projects
  • Education, health and infrastructure spending to be maintained
  • Nearly $150bn of non-oil projects in design or main contract bid phase

Saudi Arabia plans to cut spending and delay some state-funded projects in reaction to lower oil prices, the kingdom’s finance minister said.

Ibrahim al-Assaf told CNBC Arabia that the government will work on cutting unnecessary spending and focus on key projects and social development infrastructure.

Saudi Arabia, the world’s largest exporter of crude, has faced a significant drop in government revenues since the world oil prices dropped a year ago from a four-year run of high prices.

“We have built reserves, cut public debt to near-zero levels and we are now working on cutting unnecessary expenses while focusing on main development projects and on building human resources in the kingdom,” Al-Assaf said in the television interview.

The minister said some sectors would continue to receive investment as the country continues to diversify away from reliance on energy.

“Projects in sectors such as education, health and infrastructure are not only important for the private sector but also for the long-term growth of the Saudi economy,” he said, adding that Riyadh may issue bonds or sukuk to finance some spending projects.

Doubts started to surrounded non-essential projects, such as ambitious plans to build 11 sports stadiums across the kingdom, in the first quarter of 2014 when analysts were slashing oil price outlooks for the remainder of 2015.

The kingdom relies heavily on oil revenues and many observers have expected Riyadh to adapt and factor in the prevailing economic conditions. However, a historically high budget of $229bn was set for 2015, with expected revenues of only $190.7bn.

On top of the low oil prices, Riyadh has committed to a long-term military offensive in Yemen, adding to pressure on the government’s budget.

Saudi Arabia has nearly $150bn worth of non-hydrocarbon projects currently in the design or main-contract -bid phases, according to regional projects tracker MEED Projects. It is almost certain that many of these schemes will be postponed or will see the initial first phase lowered to a more affordable level in order to cut costs and manage cash flow.

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