| SAUDI TAKES FIRST STEPS TOWARD ECONOMIC REBOOT |
After an effective lockdown, there are signs that Saudi economic activity is returning.
On May 27, the Saudi Ministry of Human Resources and Social Development said private sector employees will be able to start working from their offices soon.
However, all private sector entities must prepare work spaces so that they are in line with Ministry of Health guidelines to prevent the spread of COVID-19.
The Ministry of Health also launched the third phase of examinations on May 20 as part of its preventive measures to prevent the virus from spreading.
The third stage will be implemented through centers for examining people in cars set up in several cities, apart from testing in primary health care centers.
To counter a new wave of coronavirus cases, the kingdom also signed a SAR 955 million contract with China to conduct 9 million tests for the virus.
In addition, the government unveiled new measures to generate revenue and reduce its expenses as it pays for the unprecedented health crisis. In May, the Ministry of Finance raised the value added tax and suspended a cost of living allowance for government workers, to overcome the pandemic that has forced most countries in the world to take tough measures.
VAT will be raised to 15% from 5% starting July 2020 to generate non-oil revenues, while allowances will be discontinued from June 2020.
The measures will help the government reduce costs by SAR 100 billion, as it also cancels, extends, or postpones some operational and capital expenditures for some government agencies, and reduce funds for a number of initiatives related to the Vision Realization Programs and major projects for the current fiscal year, the ministry stated.
“To improve spending efficiency, a ministerial committee has been established to study the financial benefits paid to all employees, contractors and those of similar status whom are not subject to Civil Service Law in government ministries, institutions, authorities, centres, and programmes, and present its recommendations within 30 days,” the Ministry of Finance said.
EASING FINANCIAL BURDEN
To ensure that low-income households remain supported during the pandemic, the government also disbursed a total of SAR 1,850 million this Ramadan for social security beneficiaries with SAR 1,000 for a head of family and SAR 500 for a dependent to help citizens.
These measures are important as Saudi Arabia is facing three headwinds, according to the ministry. These include an unprecedented decline in oil demand and the necessary measures taken by the government to stop the spread of coronavirus, which has virtually suspended economic activity.
The third “economic shock was the unplanned expenses that required government intervention by increasing provisions for the healthcare sector to support the preventative and treatment capacity of health services,” apart from mitigation measures to support the economy.
The Ministry of Finance has also channelled SAR 47 billion in funds to the Ministry of Health to purchase essential medical supplies and protective gear to safeguard its citizens.
The government has also accelerated payment of private sector dues and paid off more than SAR 200 billion.
Finance minister Abdullah Al-Jadaan said another SAR 14 billion has been earmarked to provide additional support to the private sector.
ECONOMY REMAINS RESILIENT
Global rating agencies also continue to highlight the resiliency of the Saudi economy and its ability to cope with any challenges.
“Fitch affirmed the Kingdom’s rating (A) with a stable outlook, while Moody's agency updated its credit report ranking Kingdom (A1) with a negative outlook due to the current unprecedented challenges and fluctuation of oil prices caused by COVID-19," said Fahad Al-Saif, President of the National Debt Management Center. "These international reports reflect the credibility and trust investment institutions have in the Saudi economy."
Saudi Arabia also successfully raised a USD7 billion with a three-tranche bond deal in April.
The kingdom, acting through the Ministry of Finance, sold USD 2.5 billion in 5-1/2-year bonds at 260 basis points (bps) over U.S. Treasuries, USD 1.5 billion in 10-1/2-year bonds at 270 bps over the same benchmark and USD 3 billion in 40-year bonds at 4.55%.
The issuance was more than 7 times oversubscribed, with total orders amounting to more than USD 54 billion, underscoring investor appeal for Saudi bonds in a tough and volatile global market environment.
There is evidence of economic activity coming back. The Saudi purchasing managers’ index (PMI) was up slightly in April compared to March, reflecting a slower reductions in new work and stronger contribution from the suppliers' delivery time component.
“Looking ahead, the proportion of survey respondents expecting a rise in business activity over the year ahead exceeded those forecasting a reduction, but by only a small margin,” according to IHS Markit, that tracks PMI for a number of countries every month. “The index was up slightly since March but still at a historically low level in April, mainly reflecting continued uncertainty about the length of worldwide lockdown measures.”
Contact SAB
