Economy

The Kingdom is threatened by a 22% increase in its budget deficit

The Kingdom threatens to increase its budget deficit by more than 22% in light of the crisis of the spread of Coronavirus and the decline in oil prices, as well as the failure of the policies of the Saudi economic system.

The Kingdom may witness a rise in its budget deficit for 2020 to 16.1% from the previous estimate of 6.4% if the average price of oil is $40 a barrel.

If the average price is $30 a barrel, Capital figures say the deficit will jump to 22.1%, which is equivalent to $170 billion.

From empty hotels to suspended flights, the Kingdom stands on the threshold of a difficult economic stage, influenced by measures to protect against the emerging Coronavirus, and is deepened by the collapse in oil prices and possible austerity measures.

Heavy losses are expected after the Kingdom closed cinemas, commercial centers and restaurants, suspended flights and the performance of Umrah, and prevented exit and entry from the Qatif region (east), which is inhabited by about half a million people, in an attempt to contain the virus.

The Kingdom faces the challenge of low oil prices, the main pillar of government revenues, which fell to below $30 a barrel this week for the first time in four years, which calls for austerity measures likely to put huge diversification projects at risk of delay.

Compounding the unrest may be the recent arrests of King Salman bin Abdulaziz’s brother and nephew, Prince Muhammad bin Nayef, which have suggested a shake-up in political stability amid public silence.

“It is a time of crisis,” a government employee said, noting that he had begun to convert part of his salary into dollars and gold coins.

“Nothing can be predicted and we must be prepared for the worst,” he added.

The central bank played down the importance of fears that lower oil prices may affect the local currency, which has been linked for decades with the dollar.

A gold dealer in Riyadh stated that he had received a number of inquiries about converting “large sums of cash” into bullion and gold coins.

Many government employees fear that government support measures will decline despite the cost of living.

Some Saudis are also concerned about the possibility of freezing the employment mechanism in the public and private sectors, while Saudi students have expressed fear that government scholarships will be affected by education abroad.

Consulting firm Nasser Al-Saeedi and Co. said that the Ministry of Finance has ordered government agencies to submit proposals to reduce spending this year by between 20 and 30 percent.

“This is likely to be done through delayed projects, delays in awarding contracts, among other things,” said a company note.

According to the researcher, the Energy Intelligence Group, theKingdom is preparing to deal with very low oil prices, between 12 and 20 dollars a barrel.

“The public’s confidence depends on government spending and the oil situation – both of which have declined,” said a Saudi ministry adviser on a major project. “We are not sure that we will keep our jobs tomorrow.”

Many Riyadh hotels were forced to ask their employees to take leave without pay.

The Ministry of Health allocates several capital hotels to quarantine people in light of the spread of the new Coronavirus, according to several employees and guests who were asked to leave suddenly.

The collapse in oil prices came after the Kingdom’s decision to raise production starting in April and to undertake the largest price reductions in two decades, in response to the failure of the agreement to reduce production between the Organization of Petroleum Exporting Countries led by the Kingdom, and a group of oil countries outside Russia led.

The Kingdom has recorded a budget deficit since 2014, totaling more than $350 billion. It borrowed more than $100 billion and withdrew its reserves to cover the deficit.

And the projects of Crown Prince Mohammed bin Salman, estimated at billions of dollars, are vulnerable, as the Kingdom needs a crude price of about $80 a barrel to balance its budget.

Amid mounting economic challenges, the detention of princes has raised fears of instability.

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