SAUDI ARABIA TO TAKE ‘STRICT, PAINFUL’ MEASURES TO DEAL WITH VIRUS IMPACT

Sun 03 May 2020:

Saudi Arabia will take strict and painful measures to deal with the economic impact of the coronavirus pandemic, the finance minister said on Saturday, adding that “all options for dealing with the crisis are open”.

Earlier this week, the Kingdom reported that its budget had fallen into a $9 billion deficit after oil revenue plunged amid a global oversupply of crude due to the coronavirus pandemic. Despite oil being Saudi Arabia’s largest revenue, the Kingdom maintains significant reserves and has vast untapped borrowing potential.

Al-Jadaan said that authorities in Saudi Arabia are currently studying several options aimed at mitigating the damage caused by the coronavirus.

The minister added that the drop in both oil and non-oil revenues will be seen further in the coming quarters.

“We began the year with oil prices higher than $60 per barrel, these days we’re seeing the numbers near $20. This huge drop leads to a more than 50 percent drop in oil revenues,” he said.

“We must reduce budget expenditures sharply”, Mohammed Al Jadaan said in an interview with Al Arabiya TV, adding that the impact of the new coronavirus on Saudi Arabia’s state finances will appear from the second quarter of the year.

The minister said last week the Kingdom would limit the amount of money it would take from its reserves to a maximum of $32 billion. Instead, the Kingdom will take advantage of its mostly untapped ability to borrow, and issue $60 billion of debt.

“We will continue to take loans, and we have seen a large demand on government debt securities, internally or externally. As per the plan we will take loans up to 220 billion [riyals], as per the conditions in the market and the available liquidity,” the finance minister said.

‘Steps taken will be painful’

“Public finance needs to be regulated more. The government has worked over the last four to five years on big regulations to regulate public finance and lower the deficit, but we still have a long way to go. We will reduce expenditure, if God wills, even if some of the steps taken will be painful, but they are for the benefit of everyone, for the benefit of the country and for the benefit of the citizens,” al-Jadaan said.

“The government must take different measures than it previously has. There must be a limit to spending, redirecting parts of it to providing health services for the nationals and residents, and facing the results of the major shock in returns, whether that’s the result of major limitations on people in terms of restricting movement and economic activities. Therefore, its repercussions on demand of raw materials including petrol and the major drop in prices,” he said.

Watch: #SaudiArabia is facing the crisis from a position of strength, but the kingdom is willing to take “painful steps” to mitigate the impact of the #coronavirus pandemic, Finance Minister Mohammed Al-Jadaan tells Al Arabiya. https://t.co/d6WjlGJfZh pic.twitter.com/1zlbDfNNJL

— Al Arabiya English (@AlArabiya_Eng) May 2, 2020

 Projects delayed

Al-Jadaan explained the Kingdom is currently considering delaying some projects as a result of the impact.

“As a result of the precautionary measures, therefore, we will reduce spending on them. Projects, whether major ones or some programs for achieving the [2030 vision], that are, in their nature, a result of the precautionary measures, require delaying its implementation, therefore reducing the spending,” al-Jadaan said.

Saudi Arabia’s central bank foreign exchange reserves fell in March at their fastest rate in at least 20 years, hitting their lowest level since 2011, while the Kingdom slipped to a $9 billion budget deficit in the first quarter as oil revenue collapsed.

Jadaan said last month that Riyadh could borrow $26 billion more this year while it would draw down up to $32 billion from its foreign reserves to finance the deficit.

On Saturday Jadaan told Al Arabiya Saudi Arabia had used some revenue from investments to plug the deficit, and that the crisis presented investment opportunities.

Jadaan noted the country had introduced stimulus measures aimed at preserving jobs in the private sector and safeguarding the provision of basic services.

We’ll get through this! Meanwhile, here’s all you need to know about the Coronavirus outbreak to keep yourself safe, informed, and updated.

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