Drastic change expected in Saudi Arabia’s fiscal program due to COVID-19, oil prices

One of the challenges facing Saudi state budget now is managing the fiscal deficits and how to cover them until reaching a break-even point, says expert. (Shutterstock)
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Updated 04 May 2020

Drastic change expected in Saudi Arabia’s fiscal program due to COVID-19, oil prices

  • Experts suggest budget cuts, privatizations potentially on the cards to help weather storm

RIYADH: A number of economic and finance experts have predicted that the Kingdom’s fiscal balance program will undergo drastic changes and will be more conservative over the medium term to manage the fiscal deficit.

A former International Monetary Fund (IMF) expert, who requested anonymity, told Arab News that international organizations would offer their services to the Kingdom to help it overcome the rare financial crisis resulting from the coronavirus disease (COVID-19) pandemic, coupled with the slump in global oil prices.

The Saudi stock index dropped to 5.7 percent, recording the largest daily loss since March 9, amid government plans to adopt drastic measures to handle the crisis.

The Saudi finance minister, Mohammed Al-Jadaan, said on Saturday that the Kingdom would take draconian measures that might be painful in order to deal with the crisis and pointed out that all options remained open to it.

According to the IMF expert, Al-Jadaan implied moving towards three options for handling the COVID-19 pandemic: Fiscal consolidation, subsidies removal, and increased fees and taxes.

He pointed out that the Kingdom’s public finances were facing multiple challenges amid the fight against COVID-19, including revenue challenges, manifest in the decline in oil revenue by approximately 50 percent due to the collapse in prices.

“The expenditure challenge can be summed up in the increased cost of the health bill. The current expenditure is more than 80 percent and is difficult to lower. So the challenge is fiscal sustainability in the short and medium term, and the final outcome depends on the duration of the COVID-19 crisis” the expert explained.

Mohammed Fahad Alomran, president of the Gulf Center for Financial Consultancy, said Al-Jadaan highlighted the need to rationalize government spending to cope with the anticipated decline in revenue by almost 50 percent. The government will adopt severe austerity measures on less important spending items in the budget with an objective to minimize the anticipated deficit, he said. This will have a negative effect on liquidity in general and, hence, on the valuation of all assets such as public equity, private equity and real estate.

“One of the challenges facing the state budget now is managing the fiscal deficits and how to cover them until reaching a break-even point. This will lead to a fundamental change of the fiscal balance program to be more conservative over the medium term. The options available right now can be deficit financing, government spending cuts and privatization programs,” Alomran said.

Hassan Alwatban, an economic consultant, said one of the challenges facing Saudi Arabia was how to handle the economic crisis and make use of the economic rationalization policies in order to cut down on spending and diversify sources of income.

“The COVID-19 impact will definitely reach the oil prices which will continue to drop as a result on the decrease in crude demand. OPEC+ plays a pivotal role in reducing the losses from oil prices through holding negotiations with OPEC members. This is the only way to reduce the output in the markets and support the crude prices and improve the monetary resources. It is important that the OPEC policies should be followed and adhered to. The advanced countries are the most affected by COVID-19 as their factories have stopped,” he said.

Ahmed A. Al-Jubair, a financial consultant and a member of the Saudi Economic Society, said he believed that the Kingdom’s huge reserves, government assets, the Saudi Sovereign Wealth Fund’s investments and Saudi Aramco would help the Kingdom overcome the challenges of COVID-19 and curb its impact on the local economy, and ensure financial and economic sustainability.

“We have trust in the Kingdom’s financial and economic policies which take into consideration the appropriate solutions for any problems facing the national economy. Saudi Arabia always hedges for such situations by taking preventive measures,” he said.


Thailand finance minister: economy to recover next year with 4% growth

Updated 23 November 2020

Thailand finance minister: economy to recover next year with 4% growth

  • Economy had bottomed but recovery was not fast as the battered tourism sector hurt supply chains
  • Budget for the next fiscal year will still focus on boosting domestic activity

BANGKOK: Thailand’s economy is expected to grow 4 percent in 2021 after a slump this year and fiscal policy will support a tourism-reliant economy struggling from the impacts of the coronavirus pandemic, the finance minister said on Monday.
Southeast Asia’s second-largest economy shrank a less than expected 6.4 percent in the third quarter from a year earlier after falling 12.1 percent in the previous three months.
The economy had bottomed but recovery was not fast as the battered tourism sector, which accounts for about 12 percent of gross domestic product (GDP), has also hurt supply chains, Finance minister Arkhom Termpittayapaisith said.
“Without the COVID, our economy could have expanded 3 percent this year, he said. “As we expect a 6 percent contraction this year, there is the output gap of 9 percent,” he told a business forum.
“Next year, we expect 4 percent growth, which is still not 100 percent yet,” Arkhom said, adding it could take until 2022 to return to pre-pandemic levels.
There is still fiscal policy room to help growth from this year’s fiscal budget and some from rehabilitation spending, he said.
The budget for the next fiscal year will still focus on boosting domestic activity, Arkhom said, and the current public debt of 49 percent of GDP was manageable.
Of the government’s 1 trillion baht ($33 billion) borrowing plan, 400 billion would be for economic revival, of which about 120 billion-130 billion has been approved, Arkhom said.
He wants the Bank of Thailand to take more action short term on the baht, which continued to rise on Monday, despite central bank measures announced on Friday to rein in the currency strength.
“They have done that and they have their measures... which should be introduced gradually and more intensely,” Arkhom said.