Oil-hit Saudi mulls paying contractors with IOUs

Contractors could hold until maturity or sell the bond-like instruments that Saudi is reportedly considering in a bid to preserve its cash flows

Saudi Arabia is considering IOUs to pay contractors as oil prices impact its revenues. [Representational image]
Saudi Arabia is considering IOUs to pay contractors as oil prices impact its revenues. [Representational image]

Saudi Arabia is reportedly mulling contractor payments through IOU documents in a bid to conserve cash flows. 

Outstanding payments would be made through bond-like instruments, that contractors could hold until maturity or sell to banks, according to Bloomberg.

Companies have received some payments in cash and the rest could come in the 'I-owe-you' notes, sources told the news wire.

However, no decisions have been made on the measures.

The kingdom's contractors have faced delayed payments as oil prices decline and strain the country's revenue. 

Bloomberg's report said Saudi could post a budget deficit of about 13.5% of economic output this year, according to International Monetary Fund estimates, pushing the government to borrow an estimated $32bn (SAR120bn).

Jaap Meijer, managing director of research at Dubai-based Arqaam, said he estimates the Saudi government owes up to $40bn (SAR150.1bn) to its contractors. 

“This [IOUs] would make sense and would help contractors get back on track,” Meijer said of the possible move.

“Banks, however, would be more interested if it were a floating rate."

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