How Soon Can Saudi Arabia’s Economy Recover from the Current Turbulent Crises?
  • Plunged oil prices will likely cost Saudi Arabia billions of dollars
  • The Kingdom relies on borrowings to reduce the budget deficit
  • Government announced a 6-point post-pandemic plan to reopen economy
  • Saudi has the 3rd largest number of COVID-19 cases among OIC countries

 

Saudi Arabia’s Finance Minister, Mohammed Al-Jadaan, said that the Kingdom could be forced to borrow around USD 26 billion more this year and will draw down up to USD 32 billion from its reserves to finance a government deficit caused by slumped oil prices and the coronavirus crisis. “We are currently studying additional measures to reduce spending. Expenses related to travel, events and other projects are put on hold and this will lead to some savings,” he said. In March, the government announced a nearly five percent cut in the 2020 budget.

The minister also mentioned that the earlier projection of 6.4 per cent in the budget deficit will reach nine per cent by the end of the year. This figure could be even worse due to the worsening situation of the oil sector with production cuts and plunged prices expected to cost the Kingdom’s revenue tens of billions of dollars this year. In its efforts to stay optimistic, the government, on 23 April, announced a six-point post-coronavirus economic plan that promises to reopen the economy and the gradual return of business sectors to work.

In line with this plan, a recent report by the Council of Saudi Chambers highlighted the impacts of COVID-19 pandemic on Saudi Arabia’s economy and outlined three probable scenarios before the national economy. While the first scenario, which suggests the coronavirus pandemic will be controlled by the end of April may not be applicable given the exponential increase in the number of new patients, the second scenario indicated containing the virus by June 2020 and that might lead to the gradual return to business. The third scenario said the situation would drag down till September.

Another optimistic note was released by the head of Saudi Arabia’s sovereign wealth fund Yassir al-Rumayyan at an online investment forum on 23 April. According to Reuters, Rumayyan said there will be a lot of potential for investment opportunities once the coronavirus crisis passes. He also mentioned that the Public Investment Fund (PIF) was looking into investment opportunities in areas such as aviation, oil & gas and entertainment. Currently, the PIF manages over USD 300 billion in assets and has stakes in some of the world’s largest companies.

The government of Saudi Arabia has enforced various safety measures including the closure of the two holy mosques in Makkah and Madihah, night-time curfew in most cities and total lockdown in others, in addition to shutting down malls and non-essential businesses to restrict people’s movement and curb the spread of the virus. Detective tests intensified in April and King Salman instructed that all COVID-19 patients would be treated free of charge regardless of their residency status in the Kingdom.

Given the current status of COVID-19 in Saudi Arabia, experts suggest that the Kingdom should be careful in considering to ease any of the safety measures to avoid possible catastrophic consequences. However, the government announced reduced curfew hours in some areas during Ramadan. Saudi Arabia reported the first COVID-19 case on 2 March 2020 and since then, the number of cases increased at an average daily rate of 22.50% to reach 13,930 as of 23 April. So far, a total of 1,925 COVID-19 patients recovered and 121 of them passed away in the Kingdom.