Tuesday 19 March 2024
 
»
 
»
FOCUS ON EFFICIENT SPENDING

Saudi ministry seeks return of unspent money

RIYADH, October 12, 2015

Saudi Arabia's finance ministry, seeking to cut waste as state revenues shrink because of low oil prices, is telling government bodies to return unspent money which they were allocated in this year's budget, sources familiar with the policy told Reuters.

Over the past several years of sky-high oil, government bodies in the world's top oil exporting nation were given considerable freedom to transfer money from one project to another as they wished. That led to a bonanza of ad-hoc spending on bonuses, travel allowances and the like.

Now, ministries are being told that if money is not fully spent on the projects for which it was originally allocated, the remainder must be sent back to the Treasury, the sources said. The ministry did not respond to a request for comment.

The tighter policy underlines a sober mood taking hold in Riyadh because of the halving of oil prices since mid-2014. The International Monetary Fund and private analysts calculate Saudi Arabia may run a record budget deficit of $120 billion or more this year; to pay its bills, the government has sold over $80 billion of foreign assets since August last year.

Around the kingdom, bureaucrats, businessmen and ordinary Saudis are preparing for a period of relative austerity as the finance ministry asserts more control over the purse strings.

"Saudi Arabia has started to focus on efficient spending, which means tighter financial supervision," said prominent local economist Fadl Al-Buainain.

"Suspending the transfer of financial items...means that if they are not invested in the project for which they were allocated, the surplus can be invested in another, more important project as needed."

Finance Minister Ibrahim Alassaf said last month that his ministry was "working on cutting unnecessary expenses". He did not elaborate, but his comments were widely seen as pointing to significant spending cuts in some areas of next year's budget.

A note sent by the ministry to state bodies in recent weeks, widely circulated on social media, asked them to halt buying of new cars and office furniture, and suspend new hiring and promotions for government jobs, until the end of 2015.

Mazen Al-Sudairi, head of research at major Saudi financial firm al-Istithmar Capital, said the finance ministry routinely issued such instructions towards the end of each year to make it easier to prepare for the following year's budget.

But this year's note triggered a storm of comment and speculation on Twitter about future spending cuts, which Al-Sudairi said showed the extent of concern among citizens.

"The Saudi economy is going through a transformation, but people are panicking because they don't understand that transformation does not mean that the economy is getting worse," he said.

ASSETS

Saudi Arabia is not close to running out of money; net foreign assets at the central bank, which acts as the kingdom's sovereign wealth fund, remained massive at $655 billion in August, according to the latest official data.

So far this year, total state spending is believed to have exceeded the record SR860 billion ($229 billion) projected in the original budget for 2015, released last December.

One reason is a lavish package of bonuses for state employees and pensioners and other handouts announced in January this year to mark the accession of King Salman; economists estimated that package was worth around $25 billion.

The military campaign which Riyadh launched in Yemen in March, including air strikes, a naval blockade and limited ground intervention, may cost it several billion dollars this year, military analysts estimate.

But in other areas, government spending already appears to be slowing. Official data released last week showed the finance ministry approved $28.3 billion of new contracts in the first nine months of 2015, down 38 per cent from a year earlier.

Those contracts cover only a small fraction of state spending; some big projects are handled off the national budget. But the numbers indicate a new mood of caution among officials.

Sources at the ministry of water and electricity said it had awarded no new projects in the past four months, though tenders for the projects took place earlier this year. One source said the projects had not been cancelled and might go ahead in 2016.

Meanwhile, a plan to build soccer stadiums around the country has been scaled back, a $201-million contract to buy high-speed trains was cancelled, and expansion of an oilfield was slowed, sources told Reuters in the past few months.

This pattern may continue into next year. In the 1990s, when oil prices were languishing around $20 a barrel, the government reduced total spending by around 10 percent in some years; a similar response looks possible next year.

The government has said it will "rationalise" spending on salaries and allowances for state employees, which make up about 50 per cent of the national budget, but it is believed to have little room for outright cuts given political sensitivities.

That leaves infrastructure projects and other state investment as the area likely to feel the brunt of spending cuts. Projects such as the $22.5 billion plan to build a Riyadh metro system will not be cancelled, but they could be delayed or temporarily reduced in scope, while second-tier projects may be shelved indefinitely.

Saudi economist Abdulwahab Abu Dahesh, noting that the kingdom's fiscal position remained strong, said it was still to early to say whether the government would need to make major spending cuts.

"But the steps by the finance ministry and the delays in awarding some projects mean the government is reprioritising spending," he said. - Reuters




Tags: Finance Ministry | Saudi budget |

More Finance & Capital Market Stories

calendarCalendar of Events

Ads