Coronavirus: Painful steps ahead to fight economic downturn - Saudi finance minister
Saudi Arabia is committed to protecting itself from the economic fallout of the coronavirus through any necessary financial measures despite plunging oil revenues, Finance Minister Mohammed al-Jadaan told Al Arabiya on Saturday.
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.
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
While al-Jadaan acknowledged that the unprecedented global economic impact of the coronavirus would also hit the Kingdom, he said that it was committed to taking the necessary measure to mitigate the fallout – including reducing expenditure and regulating public finance more.
“The Kingdom is committed to the task of sustaining public financing, and is committed to having enough financial strength to face this crisis even if it is prolonged. We have taken several steps both in relation to health, and in relation to financial measures in terms of reducing expenditure. Right now, we are looking at what we can do to reduce the deficit level. Certainly, there has been a significant drop in revenues, and we will likely see its impact in the coming quarters,” al-Jadaan said during an exclusive interview with Al Arabiya.
'Studying several options'
The Saudi Arabian Monetary Authority said late on Tuesday foreign assets fell in March to $464 billion, the lowest in 19 years, as the Kingdom moves to combat the economic fallout of the virus.
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.
Saudi Arabia has implemented various policies to control the spread of the virus, including implementing a lockdown on most of the Kingdom, imposing a curfew to limit public movement and shutting incoming international travel. While important, these measures have also had a negative impact on the non-oil economy, as businesses remain closed and people are told to stay at home.
“With non-oil revenues, due to the precautionary measures, they will be dropping as there is a huge reduction in economic activity and as a result, the non-oil revenues will drop. We must deal with this wisely and efficiently and with God’s will the Kingdom will be looking at several options to face a pandemic the world has never seen the likes of for more than 70 years, since nearly World War II. At a global level, this level of pandemic has never been seen before,” al-Jadaan said.
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.
Al-Jadaan added that he does not believe the Kingdom, or the world, will return to pre-coronavirus economic conditions, mainly as a result of the pandemic’s impact on economic activities and supply chains globally.
'Steps taken will be painful'
Discussing Saudi Arabia’s economic challenges, al-Jadaan said that the Kingdom’s economy still depends greatly on public spending and it will therefore continue to maintain public finance to support the economy in the near future. However, he added that his ministry believes more regulations are needed to sustain the measures.
“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.
In order to maintain and sustain public financing, the minister said that the government plans on redirecting some public funds to support the health sector in the coming quarters.
“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.
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.
The finance minister said the Kingdom is also considering other items to limit spending, provided they do not affect people’s basic services.
“We’re also considering other items, as long as we don’t touch basic services for the people, all options are open. And, the government is currently studying the effect of these options and will therefore decide based on it and we will make recommendations soon,” he confirmed.