Saudi Arabia Economy set to be having a Fiscal Rethink with latest hiccups mounting high

The kingdom of Saudi Arabia’s economy and the global largest crude exporter barely managed to get expanded the previous year as the expansion rate registered was very low 0.3% during 2019, a downfall of 2.4% compared to a year earlier and well short of the expected government’s forecast of 0.4%. This has led finally to a need of the government is reconsidering a planned strategic initiative in curbing the spending cuts to deliver better faster growth in 2020 amidst the face of disruptions from the coronavirus and also the prospect of lower energy prices.

Thus, the kingdom is looking eagerly from the private businesses to support in its economic expansion drive of 2.3% as amidst all negative statistics, there appears a slightly better news in form of non-oil growth quickening to the fastest since 2014, as it witnessed a marginal 3.3% hike in non-oil growth sector as compared to tanking almost 3.6%, its worst since 2011, as per the data pool released a week ago by the General Authority for Statistics.

Clearly this suggests that despite the initial signs of a pickup to a better start this year in 2020, the government currently has to rethink its plans of curbing back the spending as the impact of the virus outbreak ripples from China to Europe and the Americas.

Growth Revision on cards: –

According to Bilal Khan, Middle East, and North Africa, senior economist at Standard Chartered states that “the Saudi Government in tandem with the policymakers would opt for deferring spending cuts, in case the non-oil growth to be lower than the expected norms. The bank has made a revision in its this year’s growth forecast for Saudi Arabia to 1% from 2.3% on anticipation of a decline in oil output.

He additionally stated that “Proper fiscal measures would act as a much-needed cushion to the imperious impact on declining non-oil economic measure.”

As stated by economist Ziad Daoud “The net reduction in the crude production depicts that non-oil growth needs to be sustained at around 4% to reach the overall expectations of the government. This will be a hard nut to achieve if the kingdom implements its plans to curb spending.

Budget tailored made to balance the situation: –

The crude oil had its worst week since the impending danger of the financial crisis loomed in the region on the overall fear that the spreading coronavirus will further crush the demand, with Brent crude sliding below $50 a barrel.

Thus, the kingdom’s 2020 budget, which predicts that the overall deficit would be 6.4% of gross domestic product, is designed under the assumption that the global oil benchmark will average about $65 per barrel.

The International Monetary Fund predicts Saudi Arabia would need Brent to trade at $89 to balance its budget in 2020. The energy sector accounts for about 50% of the kingdom’s GDP.

Central bank Governor Ahmed Alkholifey stated in a press conference held in Riyadh the previous month that “Saudi officials have sounded a bit more confident that the economy remains on track for an upturn. Growth this year will be faster than in 2019, “especially in the private sector.” It was “too early to tell” what the impact of the virus outbreak will be on the Saudi economy, he said.


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