Saudi Arabia is considering giving contractors IOUs (abbreviated from the phrase “I owe you”) to settle some outstanding bills, according to people with knowledge of the discussions cited by Downstream Today. Contractors would receive this 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, Chicago Tribune reported.
The Saudi kingdom started last yea to delay payments to contractors and suppliers, tapping its foreign reserves and borrowing from local and international bank, to prevent the budget deficit from exceeding $100b after the oil slump.
“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,” Monica Malik, Chief Economist at Abu Dhabi Commercial Bank, said.
Saudi Arabia’s economic growth is slowing as revenue from oil exports decline. Gross domestic product will likely expand 1.5% this year, the slowest pace since the global financial crisis, according to a Bloomberg survey of economists.