Saudi Arabia might pay government contractors with IOUs.
Bloomberg’s Matthew Martin and Archana Narayanan report that the kingdom told banks it was “considering giving contractors IOUs to settle some outstanding bills.”
People with knowledge of the situation who asked not to be identified told the Bloomberg duo that contractors would be able to hold “bond-like instruments” until maturity or sell them on to banks.
The Saudi government is considering new ways to limit spending, Martin and Narayanan write, given a projected budget deficit.
The kingdom has been struggling with the reality of lower-for-longer oil prices. Even though the commodity’s prices have rebounded to seven-month highs of $48 to $49 a barrel, they are still far below June 2014’s peak of $100 a barrel.
Deputy Crown Prince Mohammed bin Salman recently unveiled aplan, called Vision 2030,aiming to curtail the kingdom’s “addiction” to oil, though some analysts have doubts about the Saudis’ stated goal of no longer being dependent on oil by 2020.
While some economists remain firm in their belief that the Saudis will not abandon their currency peg to the US dollar, Zach Schreiber, the CEO of PointState Capital who made $1 billion betting against oil two years ago, recently announced that he was short the riyal against the US dollar.
He thinks ongoing low oil prices and growing costs will ultimately lead the kingdom to abandon its three-decade-old peg.