OPEC leader Saudi Arabia is fighting to forestall an economic collapse and is making extreme spending cuts to stave-off ruin, said finance minister Mohammed al-Jadaan.
The dire straits facing the country stems directly from twin catastrophes: a ruinous oil price war against Russia it ignited last March, and the immense economic destruction inflicted by the raging COVID-19 pandemic. Saudi Arabia has more than 30,000 confirmed COVID-19 cases, the second-highest number in the Middle East and the world's 18th highest.
"The kingdom hasn't witnessed a crisis of this severity over the past decades," said finance minister Mohammed Al-Jadaan to Al-Arabiya, the Dubai-based TV news channel "It's very important that we take very tough and strong measures, and they might be painful, but they're necessary."
Al-Jadaan also said it's "very important to take strict and extreme measures, which may be painful, but are necessary for public financial stability. We began the year with oil prices higher than $60 per barrel; these days we are seeing the numbers near $20. This huge drop leads to oil revenues dropping by more than half."
He pointed out state oil revenue has plummeted by more than half this year and non-oil revenue will decrease, as well. On the other hand, Saudi Arabia's total revenues plummeted 22% to $51 billion in the first quarter year-on-year.
Al-Jadaan acknowledged government spending must be "cut deeply." He said the list of budget items to be cut is "very long." Among these will be some programs under "Vision 2030," which is Crown Prince Mohammed bin Salman's economic diversification plan. Money is desperately needed to slow the rapid spread of COVID-19.
Saudi Arabia is the country hardest hit by the pandemic in the Middle East. As of Tuesday, there were 30,251 confirmed coronavirus cases in Saudi Arabia, up 1,595 from Monday, and 200 deaths, according to Worldometer data.
A disconcerting confirmation of the Saudi economic slowdown came from the country's central bank, the Saudi Arabian Monetary Authority (SAMA), which said foreign reserves lost $27 billion to sink to $464 billion in April, the lowest in nine years. Analysts said the foreign reserve reduction can be directly tied to tumbling oil prices and the COVID-19 pandemic.
Adding immensely to Saudi woes are stubbornly low oil prices and production cuts negotiated by OPEC and its allies to end the price war against Russia. The price of Brent crude crashed by more than 50% in March. Crude has recovered somewhat but is still trading around $26 a barrel compared to over $60 a barrel when the Saudi government revealed its 2020 budget in December.
