Saudi banks have enough liquidity to support private sector amid coronavirus: Min

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Saudi Arabia’s banks have sufficient liquidity to support the needs of the private sector amid the coronavirus crisis and the drop in oil prices, said Finance Minister Mohammed al-Jadaan.

“I want to first stress that liquidity in the banking sector is very high… the banks are capable of managing liquidity and providing [for] the needs of the private sector,” al-Jadaan said in an interview with Al Arabiya.

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The collapse of oil prices amid lowered demand due to the coronavirus raised fears of a liquidity squeeze.

The Institute of International Finance (IIF) estimated that oil-exporting countries in the Middle East and North Africa would see a fall in hydrocarbon earning of $192 billion in 2020, based on an oil price assumption of $40 per barrel.

However, oil prices have plummeted sharply to historic lows over the past month, as demand dropped by a third due to lockdowns and disruption in business activity amid the coronavirus pandemic.

“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,” said al-Jadaan.

Yet, the IIF said last week that Saudi Arabia was strongly positioned to face the twin shocks of the COVID-19 pandemic and the crash in oil prices given its large financial buffers and low debt.

The Saudi central bank had said in mid-March it would intervene to support the Kingdom’s economy if liquidity is tight or credit is affected.

Read: Full transcript of Al Arabiya’s interview with Saudi Arabia’s Finance Minister on coronavirus, oil and the economy.

Government debt

Al-Jadaan also stressed the importance of ensuring that the cost of debt doesn’t increase, as that would hurt not only the government, but businesses and citizens as well.

“It is very important that we are alert and conscience that the cost of debt does not increase, because an increase in the cost of debt is not only harmful for public financing and the cost of servicing loans in the future, but is also bad for the economy.”

He stressed that the government will continue to issue debt instruments locally and internationally based on the conditions of the market and the cost of public debt.

“We will continue to take loans, and we have seen high demand [for] the government debt securities, internally and externally.”

The Saudi government plans to take up loans up to 220 billion riyals ($58.5 billion).

The Kingdom has already sold in mid-April $2.5 billion in 5-1/2-year bonds, $1.5 billion in 10-1/2-year bonds and $3 billion in 40-year bonds.

It received around $54 billion in combined orders for the bonds, a sign of strong investor appetite.

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