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IMPACT OF COVID-19 LARGE

Saudi Arabia Finance Minister Mohammed Al-Jadaan

Saudi economy is solid, can deal with deficit: Al-Jadaan

RIYADH, May 24, 2020

The Minister of Finance and Acting Minister of Economy and Planning, Mohammed bin Abdullah Al Jadaan has said the Kingdom of Saudi Arabia has faced this (Covid-19) crisis from a position of strength.
 
He said this during an interview on "Al-Arabiya" television channel about the financial precautionary measures for the Coronavirus pandemic, said a report by the state news agency, SPA.
 
"The beginning of this year, the global coronavirus pandemic emerged with huge health and economic impacts. The Kingdom have been able to take firm and quick steps to maintain the safety of people and citizens, and to provide resources to the health sector," he said.
 
Al-Jadaan pointed out that the results of the first quarter have certainly not shown the pandemic's impact on a significant level. The precautionary measures taken by the government, and the significant results of those steps on the economy and on public financing, both globally and within the Kingdom, these will show in the second, third and fourth quarters depending on developments in the health and economic sectors, indicating that the Kingdom is committed to public finance and sustainability, and is committed to having enough financial strength to face this crisis even if it is prolonged, adding that the Kingdom have taken several steps both in relation to health, and in relation to financial measures in terms of reducing expenditure we are currently looking at what we can do to reduce the deficit level.
 
He stated there has been a significant drop in revenues, and we will likely see its impact in the coming quarters, whether in oil revenues, as the Kingdom began the year with oil prices higher than $60 per barrel; these days we are seeing the numbers near $20 and this huge drop leads to oil revenues dropping by more than half.
 
"Non-oil revenues will also be dropping due to the precautionary measures, which have caused a huge reduction in economic activity and as a result, non-oil revenues will drop. We have to deal with this wisely and efficiently and the Kingdom will be looking at the several options it has in front of it to face a pandemic the world has never seen the likes of for more than 70 years, since nearly World War II. Globally, a pandemic at this level has never been seen before," he said.
 
On the question about the items that will be affected by the expected decrease, Al-Jadaan stated that the government will decide to reduce spending on projects, whether major ones or some of the programs aimed at achieving Vision 2030, as well as travel expense, duties, etc. Al-Jadaan said that they are also considering other items as long as they don’t touch basic necessities of the people, confirming that all options are open. The government is currently studying the effect of these options and will, therefore, decide based on its findings.
 
The minister said that the government shell takes strict and extreme measures, which may be painful, but are necessary for public financial stability.
 
He added that the economists, health experts, and epidemiologists have not yet been able to predict the duration of coronavirus pandemic and its extreme economic effects that we are witnessing.
 
Al-Jadaan stressed on the importance of being prepared to face the continuation of this crisis and to have the financial ability, within the limits of possibility, to provide necessities to the people.
 
The minister said that the government has taken measures that show a great ability to make decisions at the right time before it is too late, adding that the entire world is witnessing a crisis it has not seen before.
 
Al-Jadaan said that the Kingdom of Saudi Arabia was affected on a larger scale because it largely depends on oil.
 
"The Kingdom’s Vision 2030 attempted to solve this issue by diversifying the source of revenue of the economic activity, however, it still largely rely on oil revenues, the Minister of Finance said. He added that as long as oil revenues have majorly decreased, by more than half, and non-oil revenues have also decreased as a result of many of the Kingdom’s economic sectors being disrupted, we must be careful and firm in managing public finances to be able to continue providing basic necessities in case this crisis continues," he said.
 
In regards to the question about the Saudi investments abroad, Al-Jadaan said that the government is managing the public funding in a discreet and efficient matter, and has reserves.
 
“If we can see from the past five years, if we didn’t have these reserves, we would have faced major crises, we used these reserves to curb the budget deficit” Al-Jadaan added.
 
He pointed out that the Kingdom of Saudi Arabia used over 1 trillion riyals during the four or five previous years to cover the deficit. The investments are highly important because they have returns that are used in case of a crisis to curb the deficit, the minister said and added that if we use the reserves, we consume the assets and won’t have any returns.
 
Al-Jadaan said that these types of crises create investment opportunities, as many companies reduce their investments, which creates opportunities to invest in them, therefore achieving returns that curb the budget deficit over the coming years.
 
He also confirmed that it is not predictable with respect to the price of oil as this matter regulated by supply and demand, and the oil markets are the ones that set the prices.
 
He pointed that the major shocks to the global economy regarding the demand for basic goods including oil pushes greatly on the demand for oil and therefore on the oil prices.
 
“I predict that the economic shock will continue for an amount of time that is not short, the economic situation in the world is fragile, therefore, it is very important to have a plan for the worst, Al-Jadaan said.
 
He stressed that liquidity in the banking sector is very high, as it was seen in reports from international monetary organizations, and the Saudi Arabian Monetary Authority and the banks are capable of managing liquidity and providing for the needs of the private sector.
 
Al-Jadaan pointed out that the government is eager through the National Center for Debt Management not to compete with the private sector, but to continue issuing locally and internationally based on the conditions in the market and the cost of public debt.
 
“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, because an increase in the cost of debt for the government increases the cost of debt for companies, and even for citizens through their mortgages and consumer loans”, the minister said.
 
He highlighted the high demand for the government debt securities, internally or externally, pointing that as per the plan, the finance ministry will take loans up to 220 billion, as per the conditions in the market and the available liquidity.
 
Al-Jadaan said that the economic, public finance challenges that we are seeing are great, and the world and Kingdom of Saudi Arabia will not go back to pre-coronavirus conditions in term of economy, because there have been many economic changes, both in normal economic activities and supply chains, and in the prices and costs of services and materials.
 
The minister said that there are teams that are working day and night to identify the risks and find opportunities that we can utilize. He stressed that the country depends largely on public finance, and the Saudi economy still depends greatly on public spending.
 
"Therefore, we have to maintain public finance so we can continue to support the economy for the years to come," Al-Jaddan said.



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