Originally posted to the Middle East Monitor website, October 2nd, 2020.
Deflation, increased unemployment, expanding poverty rates, a growing deficit in the public budget, a significant decline in general revenues, foreign exchange reserves and public reserves, stagnation in the markets, paralysis in vital activities, expatriate workers fleeing, a sharp decline in the profits of banks and major companies and salaries being paid late – these are some of the most significant recent indicators of the state of the Saudi economy.
These factors also confirm that worse may be coming for the kingdom and that a financial and economic crisis is imminent. This crisis will directly affect the living conditions of citizens who may find themselves facing a difficult reality.
Some of Saudi’s most critical tribulations are the increase in the cost of living and the rise in the prices of basic commodities, including gasoline and diesel, in a country that is the largest oil producer in the world. Moreover, the cost of water, electricity, public transport and telephone bills have magnified, while taxes have risen, especially VAT. Perhaps imposing new taxes previously unknown to the kingdom, such as income tax, may follow, as well as other austerity measures.
Saudi Arabia may need to take other steps including the government’s acceleration of the privatisation policy, such as the sales of companies and vital facilities to the private sector and foreign investors, especially healthcare and education – including schools, hospitals and pharmacies.
It may also need to sell all flour mills, desalination companies, electricity production and 27 airports, while reducing spending, expediting the pace of external and internal borrowing, and therefore increasing public debt, while continuing to withdraw from cash reserves deposited abroad. Saudi may also postpone the implementation of many major investment projects that aid the economy, create new jobs and augment the rate of economic growth.
The latest indicators issued on Wednesday by the kingdom signal a jump in the unemployment rate among Saudis, as the rate increased during the second quarter of this year to 15.4 per cent, compared to 11.8 per cent during the first quarter of the year.
It is noteworthy that the rise in the unemployment rate occurred despite around 2.5 million expatriate workers leaving the kingdom since 2017, and there are 1.2 million expatriate workers expected to leave the kingdom during the current year, due to the outbreak of the coronavirus. Major companies have also stopped paying salaries, while private sector companies are lowering them, while continuing to implement the Saudisation policy of replacing foreign workers with national workers, as well as localising many economic sectors.
This growth in unemployment rates is occurring in Saudi Arabia, one of the richest Arab countries and the largest oil producer in the world. It may disturb the calculations of the decision-maker who had planned to reduce the unemployment rate among Saudis to only seven per cent, according to the Saudi Vision 2030, and to about 10.6 per cent for the year 2020, according to the expectations of the Ministry of Economy.
This increase also means that the Saudi economic policies have failed, as they did not provide new job opportunities for recent graduates, despite the kingdom’s wealth abroad, which amounts to around $500 billion. The government failed to even preserve existing job opportunities.
The second indicator that reveals the impasse of the Saudi economy and its financial position, is the deflation of the economy by seven per cent in the second quarter of this year. The non-oil sector was the most affected, as it deflated by 8.2 per cent, while the oil sector declined by 5.3 per cent.
This sharp deflation was preceded by a decline in the value of oil exports, which fell by 46.4 per cent last July. These revenues represent the largest percentage of Saudi budget revenues. The surplus in the foreign trade balance (oil and non-oil) also fell by 65.1 per cent, from the beginning of the year until July 2020.
As for the third indicator, the Saudi Ministry of Finance predicted on Wednesday that its budget deficit for the current year will stand at around 298 billion riyals ($79.5 billion), and that the public debt will rise to 854 billion riyals ($227.7 billion), while it could reach 941 billion riyals ($250.9 billion) in 2021.
Regarding other financial position indicators, the foreign exchange reserves curtailed, losing 105 billion riyals ($28 billion) last August, reaching 1.83 trillion riyals ($488 billion). The sharpness of the collapse was due to the continuing decrease in oil prices and the grave repercussions of the coronavirus pandemic on the economy.
The general reserve of the kingdom dropped by 15 per cent last August, resulting in 422 billion riyals ($112.5 billion), while the general reserve has diminished by 56 per cent since the end of 2015.
The profits of Saudi banks dwindled during the first half of this year, by 40.9 per cent, reaching 13.15 billion riyals ($3.51 billion).
With the continuing slump in oil prices, the outbreak of the coronavirus pandemic and the cessation of activities such as Hajj and Umrah, the Saudi economic crises are likely to proliferate. This will affect public finances, citizens, the labour market, foreign workers and the aid and grants provided by the kingdom’s government to a number of countries and organisations.
Link to the original post: https://www.middleeastmonitor.com/20201002-difficult-days-await-saudi-citizens/
