Saudi Arabia’s government, 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 5 percent, 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 labor 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 5 percent of remaining obligations”.
The kingdom is facing a budget deficit of nearly $100 billion caused by a sharp slump in oil prices as well as Riyadh’s rising army expenditure, a large amount of which is being funneled into a military campaign against Yemen where at least 8,400 people have been killed and over 16,000 injured.
The new measures were introduced by the ministry of economy and approved by Saudi Arabia’s King Salman bin Abdulaziz Al Saud to “rationalize spending and increase its efficiency.”
It also mandates that government bodies gain permission from the finance ministry before engaging in new contracts.
The Saudis are selling off foreign assets and issuing domestic bonds in an effort to shrink the deficit and shore up cash reserves, which experts have warned would only last a few more years at their current rate of decline.
On Thursday, Riyadh reportedly asked international banks for a loan of up to $8 billion along with an option to increase the amount.