Saudi sets aside SAR100bn to settle delayed private sector payments

Saudi Arabia’s government has set aside SAR100bn ($26.7bn) to pay debts that it owes to private sector companies after payment delays that have lasted months, an official document seen by Reuters shows.

To help curb a huge budget deficit caused by low oil prices, the government of the world’s largest oil exporter has slashed spending and reduced or suspended payments that it owes to construction firms, medical establishments and even some of the foreign consultants who helped to design its economic reforms.

But the payment delays have seriously damaged some companies, slowing the economy, and earlier this week the government said it would make all delayed payments by the end of this year.

Read more: Saudi Arabia to settle private sector payments by end of year

Authorities have not disclosed the total size of the unpaid bills, but private analysts have estimated they may total tens of billions of dollars.

The document, labelled urgent and issued by the finance ministry for transmission to all government agencies, says a royal decree has mandated the finance minister “to take the necessary procedures to pay all delayed payments by the end of the current fiscal year”.

“Payments should not exceed 100 billion riyals,” the document adds, saying the money will come from budget surpluses accumulated in previous years. It does not say whether the government expects actually to pay out all of the maximum allocation of SAR100bn.

Government agencies should register payment orders at a finance ministry website created for this purpose within three weeks, the document says.

Finance Minister Mohammed al-Jadaan reiterated on Thursday that the government intended to make all delayed payments to the private sector “as soon as possible”, estimating these payments could total a “significant amount of billions” of dollars.

The government’s original budget plan for 2016 envisaged a deficit of SAR326bn, after a record deficit of SAR367bn in 2015.

Local analysts have been forecasting this year’s deficit, expected to be announced late next month along with the 2017 budget plan, will be smaller than the original projection by a large margin.

A SAR100bn payout by the end of this year would exceed the expectations of many analysts and could result in a larger deficit than they have been forecasting, perhaps around SAR250bn or more.