Saudi cost-cutting drive may axe $20bn projects

Bloomberg

Saudi Arabia is weighing plans to
cancel more than $20 billion of projects and slash ministry budgets by
a quarter to repair finances squeezed by low oil prices, people familiar with the matter said — efforts that analysts expect to slow economic growth.
The government is reviewing thousands of projects valued at about 260 billion riyals ($69 billion) and may cancel a third of them, three people said, asking not to be identified as the discussions are private. The measures would impact the budget for several years and may include transport, housing and healthcare projects, according to two of the people. The government plans to carry out the review within six months, they said.
A separate plan includes merging some government ministries and eliminating others, two people said, also speaking on condition of anonymity.
Under deputy Crown Prince Mohammed bin Salman, the world’s biggest oil exporter has taken steps to rein in a budget shortfall that ballooned to 16 percent of gross domestic product last year, the highest among the world’s biggest 20 economies. The prince also plans to sell a stake in oil giant Saudi Arabian Oil Co., or Aramco, and create the world’s biggest sovereign wealth fund.
The International Monetary Fund expects the shortfall to drop to below 10 percent of GDP in 2017.

Short-term Strategy
“The revenue and economic diversification strategy being pursued will only start to yield results over the medium- to long-term,” Raza Agha, VTB Capital’s chief economist for the Middle East and Africa, said by e-mail. “In the short term, it is a question of living with lower oil prices by cutting some capital spending, and financing what’s left via debt sales and drawing down foreign reserves.”
The Finance Ministry declined to comment, while officials at the Ministry of Economy and Planning weren’t available for comment when contacted by Bloomberg.
Authorities set up the National Project Management Office last year to control capital spending and ensure that government projects are carried out efficiently. The office will oversee similar bodies, being created in ministries, municipalities and state entities to ensure infrastructure projects are executed on time and within budget.
The kingdom is also looking at other ways to bolster its finances. Plans are afoot to
sell its first international bond early next month, which could raise more than $10 billion, people familiar with the plans said in August. Public debt levels will increase to 30 percent of economic output by 2020 from 7.7 percent, according to targets set out in the transformation plan released in June.
The drop in Brent crude prices from more than $110 a barrel in 2014 to below $50 as well as the government’s spending cuts are already weighing on growth prospects.
Gross domestic product is forecast to expand 1.5 percent according to data compiled by Bloomberg. Excluding the 2009 global recession, that’s the slowest pace for more than a decade. The IMF estimates medium-term growth would settle around 2.5 percent, hardly enough to lower one of the world’s highest youth unemployment rates.