Written by Brendan Byrne

Continued low oil prices and the war in Yemen have hit Saudi Arabia’s budget so hard it is creating a special office to oversee government spending and cut waste. On Monday, the Saudi Press Agency published an item noting that Saudi Arabia was “willing to cooperate with OPEC and non-OPEC producers” to maintain a “stable” oil market. WTI retook $42, however analysts remain pretty pessimistic about hopes that the Gulf OPEC nations are in any mood to restrict production, which is hurting budgets but helping with certain political objectives, such as killing US shale and hurting arch-enemy, Iran.

In a Bloomberg report, Zainab Fattah cites two people with knowledge of the matter who claim that the first projected budget deficit since 2009 inspired the decision to create an office to oversee government spending. The project management office will report to the Committee of Economic Development.

Chart via S&P Capital IQ

Saudi Arabia projects budget deficit for 2015

Similar bodies will be created in ministries, municipalities and state entities, designed to oversee projects and make sure they are completed on time and within budget.  Spending controls have been put in place, and the International Monetary Fund has warned that assets to support spending may be exhausted within 5 years. At the same time as cutting spending, Saudi Arabia is dipping into foreign reserves, selling bonds and delaying projects while still maintaining a war in Yemen.

“Saudi Arabia is looking to review its capital spending to focus on critical projects, whilst seeing where spending can be cut back,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank PJSC. “Current expenditure generally is harder to cut back than capital, as it includes areas such as wages and subsidies.”

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