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Delays are expected to Saudi infrastructure projects

The Saudi Arabian government is likely to delay or reduce infrastructure projects due to budget cuts forced by the low price of oil. 31 Aug 2015

Sources told Bloomberg that Saudi Arabia is seeking advice from advisers on making significant cuts to its capital spending plans for 2016.

This could involve cuts to planned investment spending of about 10%, Bloomberg's sources said. Spending in 2015 is estimated to be about $102 billion, it said.

Jean-Michel Saliba, Middle East and North Africa economist at Bank of America Merrill Lynch told Trade Arabia that spending cuts are likely and will focus on capital expenditure first. These cuts will be gradual he said, and the impact on the economy will be mitigated by the use of foreign labour, he said,

Middle East infrastructure expert Sachin Kerur of Pinsent Masons, the law firm behind Out-Law.com said: "It is prudent for Saudi Arabia to revisit capital expenditure to ensure it is commensurate with the medium-term revenue position of the country and that it takes into account where oil prices may settle."

"Saudi Arabia’s infrastructure deficit remains significant," Kerur said, "and therefore it is unlikely there will be a cull of key projects. What may well emerge is a solid programme of must-have projects, some of which will be financed by alternatives other than government spend."

Saudi Arabia is likely to post a budget deficit of almost 20% of gross domestic product this year, according to the International Monetary Fund.

Saudi Arabia had been one of the strongest growing economies in the G20, the IMF said.

"Rising oil prices and production resulted in large external and fiscal surpluses and strong government spending led to robust private sector activity. Over the past year, however, the global oil market environment has changed substantially with oil prices dropping by close to 50%", it said.

In June, Deloitte predicted that a record number of contracts would be awarded for projects across the Gulf Cooperation Council (GCC) region, worth $172 billion.

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