Saudi Arabia: unprecedented measures to mitigate the oil price strike and the Corona epidemic

The Kingdom of Saudi Arabia is heading to take unprecedented measures to alleviate the blow of the low oil prices and the Corona epidemic, a step that seeks to get rid of the worst financial crisis in decades.

In a report published by the American Wall Street Journal, writers Rory Jones and Donna Abdel Aziz said that oil prices have declined since early March, in part due to the price war launched by Saudi Crown Prince Mohammed bin Salman with Russia, at the time he struck Corona virus caused the Saudi economy to decline in global demand for crude oil.

Although Riyadh agreed on April 12 to conclude an agreement with 23 countries to cut production, the move has so far failed to raise prices again, and in reality the meager oil revenues mean that Saudi Arabia (the world's largest oil exporter) will have to withdraw $ 32 billion Of foreign reserves this year, and borrow billions more from debt markets.

For the time being, some businesses rely on government aid that the crisis forces them to cut off funding to shift the economy away from oil.

According to the International Monetary Fund, the kingdom needs the price of a barrel of oil to be around $ 76 to balance its budget this year, and to ease the economic blow, Saudi Arabia has taken new incentive measures internally, such as helping to support workers ’wages in the private sector, and continuing to pay salaries Public sector. 

Incentive measures
The Wall Street Journal report finds that stimulus measures may mean that the kingdom's economy suffers less than other countries ’economies, and the International Monetary Fund expects the country’s GDP to decrease by 2.3% this year, compared to 5.9% for the United States and 3% around the world.

However, the budget deficit in the Kingdom is expected to swell to approximately 13% of GDP, and the government has agreed to raise the debt ceiling on gross domestic product from 30% to 50%, and the country's reserves have decreased by a record $ 24 billion in March to reach 479 billion. 

Until now, no public reaction was not observed on the economic setbacks. Rather, the Saudis praised the government’s response to the Corona epidemic, especially with regard to its pledge to pay the costs of treating the injured, noting that the Kingdom recorded more than 24 thousand cases and 169 deaths.

But the risks of a setback to the monarchy are increasing, as the deteriorating financial position of the government may force it to cut public sector wages. 

This would threaten the long-term social agreement in the Kingdom, which is to take over the Al Saud family over decades of distribution of oil wealth in the country through subsidies and easy government jobs, in return for obedience and absolute power, according to the report.

The authors pointed out that Prince Muhammad bin Salman, who realized the extent of the kingdom's dependence on limited oil wealth, has tried in recent years to restructure the economy away from oil, and in this context he has directed to reducing subsidies and tried to transfer workers in the public sector to the private sector, but these efforts It yielded different results.