“It is very important to take strict and extreme measures, which may be painful, but are necessary for public financial stability,” finance minister Mohammed al-Jadaan said Saturday in a televised interview with state-backed news organization Al-Arabiya. “We began the year with oil prices higher than $60 per barrel; these days we are seeing the numbers near $20. This huge drop leads to oil revenues dropping by more than half.”
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Saudi Arabia’s total revenues for 1Q were Riyal 192 billion ($51 billion) – a drop of 22% compared with the same period in 2019.
Another signal that the kingdom’s economy is slowing came last week when the Saudi Arabian Monetary Authority (SAMA) said its foreign reserves fell $27 billion in March to $464 billion, the lowest in nine years. This demonstrates the hydrocarbon-dependent kingdom’s need to stymie the damage wrecked on the economy by the tumbling oil prices and the pandemic.
In an attempt to steady the market, the 23 members of the OPEC+ alliance agreed in April to reduce production by 9.7 million b/d in May and June, followed by a 7.7 million b/d drop in 2H 2020 and 5.8 million b/d cut from January 2021 to the end of April 2022. The agreement is intended to counteract plummeting demand caused by the coronavirus pandemic.
Saudi Arabia, the de facto leader of the alliance, will cut oil supplies by almost 4 million b/d, to 8.5 million b/d, in line with the kingdom’s share of the cuts.
However, the cuts have been largely deemed not deep enough to have a sufficient impact on the market.
Moreover, on Friday, rating company Moody’s Investors said it had a negative outlook on Saudi Arabia’s credit worthiness, while affirming its A1 rating, due to the economic crises.
Moody’s said it expects government revenue will drop by about 33% in 2020 and about 25% in 2021, relative to 2019, even after accounting for potentially higher dividends from state-owned entities. A sharp slowdown in GDP growth will also depress revenue from the non-oil sector, it said.
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