Saudi Arabia has told banks in the country that it is considering giving contractors IOUs to settle some outstanding bills, according to people with knowledge of the discussions.
A projected budget deficit this year is prompting the government to weigh alternatives to limit spending. Contractors would receive bond-like instruments to cover the amount they are owed by the state which they could hold until maturity or sell on to banks, the people said, asking not to be identified because the information is private.
Contractors have received some payments from the government in cash and the rest could come in “I-owe-you” notes, the people said.
Saudi Arabia has responded to the recent decline in crude prices, which account for the bulk of government revenue, by stopping payments to contractorsand suppliers, tapping its foreign reserves and borrowing from local andinternational banks. The government started delaying payments last year to prevent the budget deficit from exceeding $100 billion after the oil slump. Deputy Crown Prince Mohammed bin Salman told Bloomberg News in an interview in March that authorities have started paying companies back.
“Much will depend on the details of the contractor bonds,” Monica Malik, chief economist at Abu Dhabi Commercial Bank, said in an emailed response to questions. “The ability of contractors to sell these bonds to domestic banks will depend on how the pricing compares to that of government debt and if they have a floating rate.”
Saudi Arabia’s Finance Ministry declined to comment. The Saudi Arabian Monetary Agency didn’t immediately respond to a call and e-mail outside office hours.
The country was among oil producers that had their ratings lowered by Moody’s Investors Service because of a collapse in oil prices, according to a statement from the credit-ratings company on Saturday. The long-term issuer rating on Saudi Arabia, the world’s biggest oil exporter, was cut to A1 from Aa3 as lower crude may lead to a “material deterioration” in the nation’s credit profile.
Saudi Arabia’s economic growth is slowing as revenue from oil exports decline. Gross domestic product will likely expand 1.5 percent this year, the slowest pace since the global financial crisis, according to a Bloomberg survey of economists.