The Saudi economy lives on the impact of financial, political and military crises that led it to enter the category of negative economies. And this is at a time when the Kingdom suffers a continuous decline in its revenues due to the Corona pandemic and its repercussions.
On Monday (November 9), the international rating agency (Fitch) confirmed Saudi Arabia’s credit rating by continuing to be at “A”, with the outlook changing from “stable” to “negative”.
The agency stated that the continuation of the rating at the same level comes as a result of the repercussions of the Corona pandemic and the risks of the second wave, and changes in oil prices, which called on credit rating agencies to make about 215 credit rating adjustments since last March.
And it expected, in a report, that the Saudi government budget deficit would widen to 12.8% of GDP this year, from 4.5% in 2019, in addition to "real GDP shrinking by just over 4% this year."
Fitch also mentioned that the Saudi government debt will reach about 35% of the GDP by the end of 2020, and then increase to 41% by 2022. It also expects the decline in the net sovereign foreign assets of Saudi Arabia to 60% of the GDP.
The agency confirmed that "the continuing weakness in Saudi Arabia's financial and external budgets has accelerated due to the Corona pandemic and the drop in oil prices."
Last September, "Fitch" lowered Saudi Arabia's credit rating from "A +" to "A", referring to the mounting geopolitical and military tensions in the Gulf and the deteriorating financial situation of Riyadh.
- Historic debt
This classification is not considered shocking given the financial and military policies pursued by the Kingdom. Yousef Al-Bunyan, CEO of SABIC, the largest producer of petrochemicals, fertilizers and steel in the region, previously said (May 2020) that the worst is yet to come.
Al-Bunyan was talking about the losses of his company, which amounted to 950 million riyals ($ 252.66 million) at the end of the first quarter of 2020, compared to the profits of 4.3 billion riyals achieved during the same period in 2019.
Al-Bunyan’s statements came just one day after Finance Minister Muhammad Al-Jadaan announced that the Kingdom will take “painful” measures to reduce public expenditures, and that Riyadh is preparing to borrow a record amount estimated at 220 billion riyals (59 billion dollars) this year, with an increase of 100 billion riyals ( $ 26.7 billion) than was planned before Corona.
According to Al-Jadaan, the Saudi borrowing plan will lead to a historic jump in debts, which currently amount to about $ 180.8 billion, to reach nearly a quarter of a trillion dollars by the end of the year.
The Saudi budget data showed an increase in the volume of public debt by the end of 2019 to 678 billion riyals ($ 180.8 billion), which represents about 24% of GDP, compared to 560 billion riyals during the previous year.
- High deficit
According to the official estimates of the Ministry of Finance, before the outbreak of Corona, it was assumed that the percentage of total public debt at the end of 2020 would reach 26% of GDP, an increase of 2% over the previous year, which means that the announced large increase in borrowing rates will double this percentage.
The budget also expected a rise in the deficit for the current year to between 7 and 9% after the outbreak of the virus, compared to 6.4% in previous expectations, while the Fitch Ratings Agency expected Saudi Arabia's budget deficit to rise to 12% of GDP, at a value of $ 80 billion. This year, compared to 4.5% in 2019.
Fitch also expected Saudi oil revenues to decline by 41%, assuming that the average oil price is $ 35 per barrel, and that non-oil revenues will decrease by 15% as a result of the Corona epidemic.
In addition to Fitch's expectations, the Saudi economy is already suffering from a period of prolonged recession, resulting from the state’s delay in paying contracting companies ’dues, imposing more taxes on companies, and increasing residency fees on foreign workers and their families.
In addition to the above, the Kingdom raised the prices of most government services, which means that the austerity measures applied by the Kingdom will increase the damage and losses to private sector companies during the coming period.
This year, the government began implementing a new article of the labor law, which provides for reducing the salaries of workers in the private sector by up to 40% due to Corona.
The suspension of the tourism sector, which contributes 10% of the Kingdom's GDP, increased the severity of the economic crisis, and according to the estimates of the Supreme Commission for Hajj and Umrah, the revenues from religious tourism in the Kingdom are estimated at $ 5.3 - 6.9 billion, the bulk of which went this year due to Corona.
The kingdom's foreign reserves also decreased by about $ 20 billion last April, while the corporation’s net foreign assets decreased from $ 497 billion at the end of last February to $ 473.3 billion at the end of March, down $ 23.7 billion (4.8%) in just one month.
- More back off
The Jordanian economist, Nimer Abu Kaf, believes that Saudi Arabia’s decline in the rating “indicates the possibility of further decline in the coming period,” especially with the fluctuations in oil prices.
He pointed out that the reason for the decline is "the fact that Saudi Arabia is a country that depends a lot on oil, which is a volatile commodity and is greatly affected by political conditions and international and military relations, and is not linked to supply and demand."
He added to "Al-Khaleej Online": "In the future, in light of what we are seeing now in terms of oil prices, it could decline from A positive to A-, but it is still in a high rating."
But he believes that "the Kingdom's decline in the rating from A + to A and then to A-, indicates the possibility of a decline in the Saudi economy, and it may be its desire in the future to borrow."
He stressed that Saudi Arabia may face difficulties in providing "more guarantees to donors, especially with the creditors' strictness in terms and interest in payment," noting that the Kingdom has a public debt of 35%, "which is an acceptable percentage, and is currently considered one of the developing countries."
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