Saudi Development Fund Boosts Lending to Weather Covid-19 Crisis

(Bloomberg) --

Saudi Arabia’s National Development Fund may double its lending to local companies this year to help them overcome the fallout from the coronavirus.

The fund, formed in 2017 to coordinate the activities of several government institutions, plans to provide an extra 22 billion riyals ($5.9 billion) to Saudi businesses, on top of the 25 billion riyals it usually disperses annually, according to Governor Stephen Groff. The NDF will use some of its roughly $100 billion of capital to finance the additional loans, Groff said.

“The calls for working capital loans, and other types of financing support, are definitely exceeding the average year,” Groff said in an interview. “Whether the final amount of funding this year will be double what we normally do is still not yet clear, but it could be around that.”

The Riyadh-based NDF is also working with commercial lenders to help restructure loans to companies struggling with repayments. By the end of May it will have provided support to over 4,000 medium and small firms across industries such as aviation, transport and manufacturing.

Oil Crisis

Saudi Arabia’s economy may shrink as much as 5% this year as shutdowns to stem the pandemic and a slump in oil prices decimate the government’s finances. Value added tax has been tripled and allowances to public-sector workers cut as the kingdom looks to keep the fiscal deficit under control. At the same time, it’s trying to provide relief by reducing government fees and utility bills, and by partially covering salaries for some citizens. The NDF will help keep additional spending commitments off the government’s balance sheet.

Groff, former vice-president at the Asian Development Bank, joined NDF in February 2019. It now oversees the country’s Real Estate Development Fund, Saudi Industrial Development Fund and Agricultural Development Fund, among others. The government hopes to reduce overlap by putting the NDF in charge of them.

“What this crisis has revealed even more so is the need for a development-finance institution in the kingdom that can address emerging and existing challenges to the economy,” Groff said. “Putting all the different sectoral funds together means they can be coordinated in a way they never have been in the past.”

The NDF wants to work more with private investors on infrastructure projects, partly to help reduce the government’s funding commitments, Groff said.

“The approach now has been very successful at getting private investors into the kingdom, but to a certain extent has been reliant on generous government guarantees and payment support,” said Groff. “It can’t go on forever because there are implications to the budget from building up all these contingent liabilities.”

©2020 Bloomberg L.P.

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