Saudi Arabia’s Finance Ministry has ordered government clients to not award any project contracts for the rest of the year. In addition to the freeze on awarding contracts, the Finance Ministry has also told government clients to not make any further appointments or promotions in the final quarter of 2015. The ministry has also reportedly prohibited any further expenditure on new vehicles or property rentals.
According to the UK-based Capital Economics, the freeze on project spending is unsurprising given that the budget deficit is likely to widen to 20 per cent of GDP in 2015. Major projects which had been slated for award in the fourth quarter include the estimated $2.6bn first phase of the Mecca Metro project and the estimated $1.3bn Waad al-Shamal integrated solar combined cycle power plant. In addition to the drop in oil prices, Riyadh’s finances are coming under increasing pressure from the military offensive in Yemen. Recently the current account of the kingdom’s central bank, Saudi Arabian Monetary Agency (Sama), is expected to fall by almost 9.8 per cent in 2015 to $659.8bn, from the $716.7bn recorded in 2014. The Saudi government plans to float sukuk (Islamic bonds) this autumn to finance its record budget deficit, while Riyadh is also preparing to float up to $27bn-worth of bonds in the final quarter. Riyadh issued its first $4bn in local bonds in 1st of July sovereign issuance since 2007.
