The sharp drop in oil prices across global markets has caused panic among contractors in the Kingdom fearing the negative impact on the government’s financial budget.

The oil market fell from $120 to less than $66.25 per barrel in the Kingdom where oil is the mainstay of the economy and the source of finance for all its development projects.

The Kingdom’s vast construction market is being driven by increased government spending, which depends on high oil prices, according to a Global Investment House report.

The Kingdom allocated a budget of $219 billion in 2013 for spending on various infrastructural projects, up by 18.8 percent from the previous year. From this, almost $76 billion has been set aside for capital expenditure on investment projects.

However, if the current oil prices continue to slide, they will reflect on the infrastructural plans of the Saudi government.

A number of contractors and economy experts told Arab News that the impact of low oil prices will appear on the local contraction market in the long term.

“It is important for the government to have enough oil-based income to finance the mega infrastructural projects currently under way and in various stages of completion,” said Farouq Al-Khateeb, an economics professor at King Abdul Aziz University.

He added that the growing Saudi population was creating pressure on the government to meet their needs through spending on various projects, especially the housing sector. The high demand for construction projects will increase the labor and materials’ costs if there are obstacles to implement them, he noted.

“Most construction firms do not have precautionary measures or a safety net to deal with low finances in the backdrop of the spiraling oil prices,” Mustafa Al-Shalwai, CEO of Al-Monsour Group for construction and Development said.

He added that the Kingdom will remain strong in investments in road, railway, power and housing projects. “But the negative impact of the continually declining oil prices may be apparent in another two or three years,” he said. “There are serious fears among contractors due to the absence of a clear vision to deal with this crisis,” he observed.