RIYADH: Saudi Arabia will take strict and painful measures to deal with the economic impact of the coronavirus pandemic, the finance minister said on Saturday, adding that “all options for dealing with the crisis are open”. “We must reduce budget expenditures sharply”, Mohammed Al-Jadaan said in an interview with Al Arabiya TV, adding that the impact of the new coronavirus on Saudi Arabia’s state finances will appear from the second quarter of the year.
“Saudi finances need more discipline and the road ahead is long,” he said. He said the world’s leading crude exporter would borrow close to $60 billion this year to plug a huge budget deficit. Saudi Jadwa Investment, an independent think-tank, forecast Thursday that the kingdom would post a record $112 billion budget deficit this year.
One measure would be to slow down government projects, including mega-projects, to reduce spending, he said. The world’s largest oil exporter is suffering from historically low oil prices, while measures to fight the coronavirus are likely to curb the pace and scale of economic reforms launched by Crown Price Mohammed bin Salman. Saudi Arabia’s central bank foreign exchange reserves fell in March at their fastest rate in at least 20 years, hitting their lowest level since 2011, while the kingdom slipped to a $9 billion budget deficit in the first quarter as oil revenue collapsed.
Jadaan said last month that Riyadh could borrow $26 billion more this year while it would draw down up to $32 billion from its foreign reserves to finance the deficit. On Saturday Jadaan told Al Arabiya Saudi Arabia had used some revenue from investments to plug the deficit, and that the crisis presented investment opportunities. Jadaan noted the country had introduced stimulus measures aimed at preserving jobs in the private sector and safeguarding the provision of basic services.
Meanwhile, Saudi shares slumped 6.8 percent as trading opened yesterday, a day after the finance minister announced “painful” measures to tackle the economic impacts of the coronavirus pandemic. Almost all the listed stocks on the Arab world’s largest bourse were in the red just minutes after the start of trading. “Some of these measures could be painful,” he said in an interview with Saudi-owned news channel Al-Arabiya.
The International Monetary Fund in April projected that the Saudi economy would contract by 2.3 percent this year. Capital Economics, a London-based think-tank, said the contraction would be at least 5.0 percent. In other bourses in the oil-rich Gulf, Dubai Financial market dropped 3.2 percent Sunday while its sister Abu Dhabi Stock Exchange was down 1.6 percent. Qatar’s bourse was 0.6 percent lower while Kuwait’s premier index and all-shares index were 1.0 percent and 0.8 percent, respectively. The small bourses of Oman and Bahrain were flat.
Meanwhile, OPEC oil output has jumped in April to a 13-month high as Saudi Arabia and its Gulf allies opened the taps following the collapse of an OPEC-led supply pact, offsetting further declines in Libya, Iran and Venezuela. On average, the 13-member Organization of the Petroleum Exporting Countries has pumped 30.25 million barrels per day (bpd) this month, according to the survey, up 1.61 million bpd from March’s revised figure.
An OPEC-led supply pact collapsed on March 6, temporarily ending three years of cooperation and starting a battle for market share. This free-for-all lasted until the producers, known as OPEC+, agreed a new cutback from May 1.
The resulting glut compounded the hit to prices that the coronavirus outbreak is having on demand, sending oil to a 21-year low below $16 a barrel this month. Even though prices are now rising, the supply outlook remains ample, analysts say. “Global oil demand is expected to improve as lockdowns are eased,” said Tamas Varga of oil broker PVM. “As encouraging as it sounds, it will not lead to supply deficit in coming months.”
While OPEC’s Gulf members have already begun to limit supply, it has a long way to go to reach the new target. OPEC’s share of the cut is 6.084 million bpd and based on April’s output, members need to curb supply by 6.97 million bpd.
The biggest increase in supply came from Saudi Arabia, which pumped a record 11.3 million bpd. Still, that is less than expected – a source briefed on Saudi policy had said April output reached 12.3 million bpd. The April figure would have been even higher had some buyers of Saudi crude asked to cancel cargoes because of reduced demand, industry sources said.
The United Arab Emirates also ramped up production to 3.85 million bpd, sources in the survey said, believed to be a record monthly rate for OPEC’s third-largest producer. Kuwait and Nigeria also boosted output. Iraq, a laggard in making cuts in 2019, curbed output according to the survey, due to reduced exports from ports in the north and south of the country. Angola pumped less because of lower scheduled exports.
Venezuela, Iran and Libya all reduced output in April. All three were exempt from voluntary OPEC curbs because of US sanctions or internal issues limiting production. – Agencies