| Government hopes to weather the coronavirus storm by taking a low-debt approach and launching a strong stimulus package to get economy back on track.
The measures taken by the Saudi government to support the economy are vital as the world faces a severe crisis that has not been seen for at least 70 years, according to the minister of finance, and acting minister of economy and planning, Mohammed bin Abdullah Al-Jadaan.
The kingdom’s total stimulus package stands at SAR 180 billion, or 8% of the non-oil economy. While the government has rolled out a number of initiatives to support the private and health sectors, it is also keeping a sharp eye on rising 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.
The stimulus is necessary, as it is supportive of small and medium enterprises, large corporations, and citizens during the temporary closures.
The government is now leveraging its financial strength, built over decades, to address the short-term economic challenges.
The government possesses strong sovereign assets, including government deposits with Saudi Arabian Monetary Authority (SAMA) and liquid assets of the Public Investment Fund, which account for 21% of GDP in 2019, much higher than its peers.
In addition, SAMA's foreign currency reserves are equivalent to around 62% of GDP and cover more than 29 months of imports of goods and services, representing “a formidable buffer buttressing the Saudi riyal's peg to the dollar and sovereign creditworthiness,” Moody’s noted. Indeed, Saudi Arabia is among the 20 least indebted countries in the world in terms of debt to GDP ratio, according to The International Monterey Fund.
The kingdom’s decision to support the economy is crucial for the short-term, but it has enough runway room to support the major infrastructure and transformative projects required in the long term to diversify the economy. |
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