Saudi Arabia could borrow around $26 billion more this year and will draw down up to $32 billion from its reserves to finance a government deficit caused by lower oil prices and the coronavirus crisis, the Saudi finance minister said.
Vast wealth and the promise of dramatic change make for cautious optimism concerning Saudi Arabia, the chief executive…116 Views | the publication reaches you by | Saudi Arabia Today
The world’s biggest crude exporter has the financial capacity to deal with the slowdown in economic activity caused by COVID-19 containment measures, Finance Minister Mohammed al-Jadaan said during a press conference on Wednesday.
“The kingdom has the fiscal ability to overcome this crisis … we will get over this in a strong position, the kingdom has gone through and seen other, deeper crises in the past and survived them.”
Saudi Arabia, which has registered 12,772 cases in total as of Wednesday, expects the COVID-19 crisis to last for a few more months but the impact on its first-quarter revenue, which will be announced in the coming days, will be limited, Jadaan said.
Riyadh last month raised its debt ceiling to 50% of GDP from a previous 30% to finance a widening deficit caused by lower oil prices and the economic downturn caused by the pandemic. This month it borrowed $7 billion in the dollar debt markets.
It plans to cover most of its expected deficit through borrowing, which it estimates will reach a total of around $58 billion this year.
Riyadh will also look to lower spending further, after having announced a nearly 5% cut in the state’s 2020 budget in March.
“We are currently studying additional measures to reduce spending. Expenses related to travel, events and other activities as well as projects put on hold will lead to some savings,” Jadaan said.
The minister said last month that the budget deficit could widen to a maximum of 7-9% of GDP by the end of the year, from an earlier projection of 6.4%.
Oil production cuts pledged by Saudi Arabia under a recent pact with international producers could wipe tens of billions of dollars from state revenues this year, analysts have said.
Saudi Arabia will announce before the end of June decisions on potential new measures to prop up its economy, Jaddan said.
Riyadh last month announced emergency stimulus measures worth more than $32 billion and more measures followed to protect private sector workers and deter companies from laying off staff.
Jadaan stressed the importance of protecting the private sector – a crucial element of reforms Saudi Arabia’s Crown Prince Mohammed bin Salman launched over the past few years to diversify the Saudi economy.
“The health of the private sector is our main concern, we will support it to get over this crisis,” said the minister, adding however that he expects the non-oil private sector part of the economy to contract this year for the first time.
This week’s plunge in oil prices, with U.S. crude oil futures collapsing below $0 on a coronavirus-induced supply glut on Monday, has put pressure on the Saudi currency, which fell in the forwards market.
Saudi Arabia has foreign exchange reserves of around $500 billion.
London-based Capital Economics said that while there was some opaqueness over the full size of the kingdom’s foreign reserves, the authorities could prop up the riyal with the current low oil prices for more than five years.
“This would give the authorities plenty of time to push through fiscal consolidation in order to make the adjustment to cheap oil,” it said.
The project for the design, engineering and procurement of the new 400,000m3/day Jubail II seawater reverse osmosis (SWRO)…213 Views | the publication reaches you by | Saudi Arabia Today
Do you have information you want to reach our readers?