Saudi Arabia might pay its government contractors with IOUs

screen-shot-2015-07-20-at-12.29.12-pmSaudi Arabia might pay government contractors with IOUs.

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Bloomberg’s Matthew Martin and Archana Narayanan report that the Kingdom told banks “it is 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 reportedly considering new ways to limit spending, given a projected budget deficit, write Martin and Narayanan.

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 about $48-49 per barrel, they’re still far below June 2014′s peak of $100 per barrel.

Recently, Deputy Crown Prince Mohammed bin Salman unveiled the Vision 2030 plan, which aims to curtail the Kingdom’s “addiction” to oil — although some analysts have doubts about the Saudis’ stated goal of no longer being dependent on oil by 2020.

Although 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’s short the riyal against the US dollar.

He thinks that the continued lower oil price environment and growing costs will ultimately lead the Kingdom to abandon its three-decade old peg.

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