Saudi Arabia has the financial ability to deal with the impact of the coronavirus and the kingdom plans to reduce government spending and increase borrowing, the finance minister said, amid a low interest rate environment.
"The kingdom has the fiscal ability to overcome this crisis," Mohammed Al-Jadaan, Saudi Arabia's finance minister, said during a press conference on Wednesday evening. "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."
The kingdom may borrow an additional 100 billion riyals (Dh98bn), on top of the previously announced 120bn riyals, bringing the total debt issuance to 220bn riyals this year, Mr Al-Jadaan said. The government will also withdraw 110bn to 120bn riyals from its reserves to bridge a deficit caused by a plunge in oil prices and lower oil production.
The global economy is facing its worst crisis since the Great Depression of the 1930s, surpassing the 2008 financial crisis, with growth set to contract 3 per cent this year, according to the International Monetary Fund. More than $8 trillion has been rolled out by the governments in stimulus worldwide and additional packages are in the pipeline, as countries look to cushion the impact of the pandemic which has forced lockdowns across the globe.
The number of people infected with Covid-19 is more than 2.6 million and over 183,400 have been killed, according to the Johns Hopkins University tracker as of Thursday. More than 714,000 people recovered.
Saudi Arabia, which has 12,772 Covid-19 infections, is under lockdown due to the pandemic, and facing a widening budget deficit caused by lower oil prices, major production cuts agreed by Opec and its allies, and the economic impact of the coronavirus crisis.
The kingdom's economy, the largest in the Arab world, is forecast to shrink 2.3 per cent this year, with its non-oil GDP contracting 4 per cent and a budget shortfall of 12.5 per cent, according to the Washington-based lender.
Saudi Arabia is planning cuts in government expenditure, Mr Al-Jadaan said without elaborating, pointing to measures to redirect spending on development projects temporarily put on hold.
"We are currently considering any additional measures at the level of government expenditures, which will be deferred in accordance with existing precautionary measures," the minister said.
Last month, Saudi Arabia unveiled a 50bn riyal stimulus package to shore up its private sector and offset the coronavirus's impact on the economy.
Mr Al-Jadaan emphasised that protecting the private sector – a key pillar in its economic diversification programme – will be a top priority during the coronavirus crisis. The kingdom is studying the sectors most affected and will ensure that the necessary support is provided.
The non-oil private sector is expected to contract this year for the first time, which is "unsurprising" given the precautionary measures taken to contain the spread of the virus, he said.
The world's biggest crude exporter also expects the reduction in oil production to impact its economic output, according to the minister.
Mr Al-Jadaan also said that the impact of the Covid-19 pandemic on both oil and non-oil first quarter revenues will be limited, according to Al Arabiya. He added that the government will announce additional measures to support the economy by the end of June.
“The kingdom went through similar crises in its history – maybe even worse – and was able to pass through them,” the minister said. “This is not an exception.”
This week, US WTI oil futures turned negative due to a coronavirus-induced supply glut on Monday and Brent plunged to the lowest level in more than two decades, however both benchmarks have since rebounded. WTI was trading at $15.16 at 12:48pm UAE time on Thursday and Brent was at $21.82.