The government is looking at additional spending cuts and may issue as much as an additional 100 billion riyals of debt on top of 120 billion riyals already announced, Finance Minister Mohammed Al-Jadaan said in a press conference on Wednesday. Officials will not withdraw more than planned from reserves, he added.
“The kingdom went through similar crises in its history -- maybe even worse -- and was able to pass through them,” he said. “This is not an exception.”
Already under lockdown to contain the spread of the coronavirus pandemic, the world’s largest crude exporter is bracing for a second impact from the oil rout and unprecedented production cuts negotiated by OPEC and its allies. Both will slash government revenue, and in turn derail a fragile economic recovery. Brent crude is trading around $20 a barrel -- a quarter of the level Saudi Arabia needs to balance its budget -- leaving officials with limited options to offset economic pain without crippling public finances.
The government’s budget deficit could widen to 15% of economic output, according to Mohamed Abu Basha, head of macroeconomic analysis at investment bank EFG Hermes in Cairo. The fiscal shortfall reached 4.5% last year after peaking at just over 17% in 2016, according to the International Monetary Fund.
The government has already tapped global bond markets twice this year and has borrowed a total of $19 billion from local and international investors, according to data compiled by Bloomberg. The government said last month that it planned to raise its debt ceiling from 30% to 50% of gross domestic product as it borrows more to cope with the crises.
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