Saudis order 5pc cut in contract spending
01 April 2016
Saudi Arabia’s government, with its finances strained by low oil prices, is opening a fresh austerity drive by ordering ministries to cut their spending on contracts by at least five per cent, a document seen by Reuters shows.
The spending cuts could further slow economic growth in the world’s top oil exporter and hurt the construction industry, where many companies are struggling with deteriorating cash flow and rising labour costs.
The document, sent by the central government to all ministries and state bodies, instructs them to reduce the value of outstanding contracts signed to support their operations, as well as construction contracts included in the 2016 state budget, by “not less than five per cent of remaining obligations”.
The measures were proposed by the minister of economy and planning to “rationalise spending and increase its efficiency”, and were approved by the Saudi king.
The document leaves ministries to decide how contracts should be revised to make the required savings. It does not explain how the ministries should renegotiate contracts with their suppliers.
Another clause in the document forbids ministries and government bodies from signing any contracts without the approval of the finance ministry. Previously, senior officials could agree small contracts without approval.
The Saudi government ran a record budget deficit of nearly $100 billion last year and has been seeking ways to narrow the gap.
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