Saudi Arabia’s government is cutting unnecessary expenses and delaying some projects to compensate for low oil prices, though projects that are important for the economy will go ahead, Finance Minister Ibrahim Alassaf said.
His comments, made in an interview with broadcaster CNBC Arabia during a visit to Washington with King Salman, were the clearest official signal yet that the government was reducing expenditure in some areas as cheap oil slashed its revenues.
Alassaf said the world’s top oil exporting country was well-prepared to cope with the plunge of crude prices since last year, and that Saudi policymakers were taking it seriously.
“We have built reserves, cut public debt to near-zero levels and we are now working on cutting unnecessary expenses while focusing on main development projects and on building human resources in the kingdom,” he said in the interview, broadcast on Sunday.
“There are some projects like the ones that have been approved a few years ago and haven’t been carried out until now – that means such projects are not currently necessary and can be delayed,” he added.
“Projects in sectors such as education, health and infrastructure are not only important for the private sector but also for the long-term growth of the Saudi economy.”
The International Monetary Fund and private analysts have calculated Saudi Arabia may run a huge budget deficit of $120 billion or more this year because of cheap oil. Its financial reserves, which total over $600bn, mean it is in no danger of running out of money for several years.
But the prospect of a long period of low oil prices – and the fact that officials have said little publicly about how they would handle it – have started to worry financial markets, with the cost of insuring against the risk of a Saudi sovereign debt default rising.
Alassaf did not give details of how he was cutting spending. Last December, the ministry said it would “rationalise” spending on public salaries, but analysts believe outright salary cuts would be too politically sensitive to introduce.
With Saudi Arabia embroiled in a war in Yemen, security spending looks unlikely to be cut. So infrastructure projects may feel the brunt; for example, a plan to build soccer stadiums around the country has been scaled back, a $201m contract to buy high-speed trains was cancelled, and expansion of an oilfield has been slowed, sources told Reuters in recent weeks.
In July, Riyadh began issuing sovereign bonds for the first time since 2007 to help cover its budget deficit.
Alassaf said the government would continue issuing bonds and might also sell Islamic bonds, or sukuk, to finance specific projects.
“There may be an issue (of sukuk) before the end of 2015 but I cannot say this will continue – it all depends on the need to finance the budget deficit.”