Saudi Arabia is preparing to enact “strict, painful measures” in the face of its worst growth contraction in two decades brought on by the twin shock of coronavirus lockdowns and low oil prices, its finance minister Mohammed al-Jadaan said in a sobering interview over the weekend, CNBC reported.
The oil-rich kingdom, in the midst of historic social and economic liberalization, is going to have to slash projects and spending as it sees its foreign currency reserves shrinking at a record pace, its fiscal deficit widening and its risk assets deteriorating.
Forecasts for GDP contraction this year are as steep as -3.2%, while ratings agency Moody’s downgraded the country’s sovereign outlook to negative from stable on Friday.
Aside from the risks to the kingdom’s fiscal strength from the pandemic and oil price shocks, further risks lie in “the uncertainty regarding the degree to which the government will be able to offset its oil revenue losses and stabilize its debt burden and assets in the medium term,” Moody’s wrote.
“We must reduce budget expenditures sharply,” al-Jadaan told Al Arabiya TV on Saturday. “Saudi finances need more discipline and the road ahead is long.”
The striking change in tone from the minister, which just ten days prior was more vocally optimistic and spoke of the country’s resilience to deal with the situation, was not taken well by markets: Saudi Arabia’s stock exchange, the Tadawul, dropped more than 7% during trading the following day. While al-Jadaan in April suggested additional borrowing on international markets, this time he said that “all options for dealing with the crisis are open.”
“The list is extremely long,” the minister said of the cost-cutting possibilities. But likely high on that list are some of the multibillion dollar mega-projects in areas from tourism to infrastructure that fell under Crown Prince Mohammed bin Salman’s ambitious Vision 2030, meant to drive private industry and diversify the kingdom’s economy away from oil.