Finance Minister: The Kingdom Has Taken Firm and Quick Measures to Maintain Human Safety
Saudi Press Agency
Sunday 1441/9/10 - 2020/05/03
Riyadh, May 02, 2020, SPA -- The Minister of Finance and Acting Minister of Economy and Planning, Mohammed bin Abdullah Al-Jadaan, confirmed that the Kingdom of Saudi Arabia has faced this crisis from a position of strength. The Kingdom has taken several steps during the past several years, based on Saudi Vision 2030 and on the wise leadership of the Custodian of the Two Holy Mosques King Salman bin Abdulaziz and His Royal Highness the Crown Prince to diversify the economy, a journey that began four years ago, and has many years left to go. The Kingdom have also taken steps in relation to public finance controls and controlling the budget deficit. And we witnessed great positive results at the end of 2019.
He said during an interview on "Al-Arabiya" channel about the financial precautionary measures for the Coronavirus pandemic: " 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."
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.
The Minister of Finance stated that the Kingdom of Saudi Arabia, with clear orders from the Custodian of the Two Holy Mosques and His Royal Highness the Crown Prince established several task forces to face this crisis, both in the health sector and the economic and financial sectors. It has also taken several measures to support the economy with the main aim of protecting the jobs of citizens in the private sector, supporting the necessary services, and providing financial and other resources for the health sector.
He stated that the Kingdom announced a set of packages that have exceeded nearly 180 billion riyals, which represents 8 percent of the non-oil domestic product.
He also added that the Kingdom have a set of initiatives, which are currently being studied, to support the private and health sectors, indicating that the Kingdom have also taken steps to reduce expenditure, due to the large decrease in revenues and are expected to continue dropping throughout the year, and the next financial year, pointing out that the Kingdom must to be prepared economically and financially to face this pandemic and the acute and painful impact on the people and the private sector.
He stressed that we are facing a crisis, which the world has not seen before, neither the health wise nor financially for decades. Therefore, the government must take different measures than it previously has, adding that there must be a limit on spending, redirecting some spending to provide health services for nationals and residents. And we must face the impact of this major shock in return.
He also indicated that the government has decided to reduce some spending as of now, but this is not enough, so it decided to borrow more than what was planned for, pointing out that the plan was to borrow a 1.2 billion Riyal, but now we will borrow more than that, nearly 100 billion riyals more, indicating that it is also not enough to cover the debt. Therefore, it is important to observe the budget's spending list and to choose the least damaging and most effective measures to benefit the economy and the people and the main services provided.
On the question about the items that will be affected by the expected decrease, Minister of Finance Mohammed 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 Finance Minister said.
The minister of finance said that the government shell takes strict and extreme measures, which may be painful, but are necessary for public financial stability. The Finance Minister 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 of Finance 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. The Minister of Finance 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.
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 of Finance 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.
The Minister of Finance 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.
The Minister of Finance Mohammed Al-Jadaan 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 Finance 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 Finance 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.
07:42 LOCAL TIME 04:42 GMT
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