Saudi government infusing cash into economy, may boost growth

Saudi Arabia's government has begun injecting large amounts of money into the economy, which could boost growth at the end of this year after a sharp slowdown due to low oil prices, central bank data showed on Monday. Its finances strained by shrunken oil revenues, Riyadh raised $17.5 billion last month in its first international bond issue - the biggest emerging market bond sale on record.
Riyadh did not hold that money overseas but quickly brought it into the country, Monday's data indicated. Instead of expanding because of the bond proceeds, the central bank's net foreign assets shrank by $10.8 billion from the previous month to $535.9 billion in October - implying the government may have brought home a total of about $28.3 billion last month. Meanwhile total deposits at Saudi commercial banks, which had been trending lower because of government spending cuts, jumped by 27.2 billion riyals ($7.2 billion) in October to 1.610 trillion riyals - their biggest increase in over a year.
Monica Malik, chief economist at Abu Dhabi Commercial Bank, said the figures suggested the government was bringing large amounts of money into the country to settle its debts to construction firms and other companies, after delaying those payments for months. "The drop in foreign assets implies much of the bond proceeds and more are being used to pay arrears to the private sector," she said.
Central bank officials could not be reached for comment on Monday, but top government officials have said in recent weeks that they planned to settle debts to companies. Fahad al-Hammadi, chief of the National Contractors' Committee at the Council of Saudi Chambers, told the Arab News last week that Riyadh had paid 40 billion riyals to construction firms.
He predicted a further 100 billion riyals of payments by the end of this year which, he said, would mean the government had settled over 80 percent of its debts to the sector. The payment delays hurt economic growth, which slowed to 1.4 percent from a year earlier in the second quarter of 2016 - the lowest rate in over three years. So the clearing of state debts could help the economy rebound.
"We can expect to see a boost to real non-oil activity in the fourth quarter," said Malik. She noted the central bank data showed cash withdrawals from automated teller machines edged up in October, suggesting cuts to public employees' financial allowances might not be having as big an impact on the economy as some analysts had feared. The liquidation of the central bank's foreign assets brought them down 16.3 percent from a year earlier to their lowest since December 2011.