Payments to contractors ‘will ease liquidity pressure in market’

The Saudi government’s plan to pay by the end of this year the money it owes to private sector companies is boosting investor sentiment, economists told Arab News Tuesday.
“It’s a very welcome development. It will help to ease liquidity pressures in the local market, and hopefully feed through into some additional private sector spending,” James Reeve, deputy chief economist and assistant general manager at Samba Financial Group, told Arab News.
Saudi Arabia’s latest effort to contain economic fallout from the slide in oil revenue fueled a 2.1 percent surge in the local stock market Tuesday.
Tadawul All-Share Index gained 130 points to 6,328 points in its fourth straight day of gains, rising above minor technical resistance at the September peak of 6,238 points.
Bankers also welcomed the move by the authorities to make the payments.
“That’s fantastic news,” commented a Saudi-based banking executive.
Reflecting the investor confidence, Tadawul’s banks and financial services index rose by 2.72 percent Tuesday.
Monday’s announcement to settle the dues came from the Council of Economic and Development Affairs, headed by Deputy Crown Prince Mohammed bin Salman.
“The council came up with a package of solutions and procedures to settle the dues that met the requirements of spending,” SPA reported after a regular meeting of the council.
Solutions “will be implemented immediately and completed before December 2016,” it said.
The council discussed “the necessary procedures to pay the amounts owed to the private sector from the public treasury,” SPA said.
SPA added that priorities were rearranged according “to impact and efficiency,” but there had been “obstacles to implement the procedures.”
John Sfakianakis, director of economic research at the Gulf Research Center, told Arab News: “These measures are steps in the right direction to help bring back growth.”
The economist said: “Outstanding payments to the private sector should be very well received by investors and businessmen alike. Payments should help increase liquidity gradually.”
According to SPA, the council said that the payment was late due to the sharp decline in oil revenue and the measures taken by the Kingdom to reduce spending on a number of projects.
Oil prices were little changed on Tuesday. Brent futures edged up 8 cents, or 0.2 percent, to $46.07 a barrel at 1627 GMT. US crude rose a penny to $44.90 per barrel, Reuters reported.
Commenting further to Arab News, Reeve said: “We expect oil prices to tick up in the next few months as stocks are slowly worked down, though prices will also be influenced by market assessments of OPEC’s ability to deliver on its pledge to curb production.”
He added: “Prices could move up or down by $10  depending on how well that deal is implemented. Private nonoil productivity will be influenced by long-term structural factors, such as education.”
According to reports, delayed payments have left foreign workers, chiefly in the construction sector, struggling for months while they await back wages.
“The council’s move will enhance household spending known as private demand, which witnessed a recent slowdown and impacted the retail sector,” Ihsan Bu-Hulaiga, head of Riyadh-based Joatha Consulting, told Arab News.
“The settlement of dues is key to easing the shrink in money supply, which witnessed a contraction of 4 percent in September,” he added.
According to SPA, billions of dollars have been saved by rescheduling and modifying contracts, while “a large number” of projects were stopped, saving tens of billions more.
Early last month Saudi Binladin Group said the government had transferred some payment in the previous two weeks, allowing it to cover some back wages to its remaining staff.

Source: Arab News