Brent Crude oil prices were trading near the $23 per barrel level at the end of March, down from the $51 per barrel level recorded at the beginning of the month.
Prices plunged in March after the Organisation of Petroleum Exporting Countries (OPEC) failed to strike a deal with its allies, led by Russia, on oil production cuts.
ICAEW notes however that Saudi Arabia’s Public Investment Fund (PIF) will continue to boost private sector investments to soften the impact on the non-oil economy.
ICAEW slashed Saudi Arabia’s non-oil growth to 0.7 percent, from 2.8 percent previously, as the coronavirus outbreak has taken a toll on sentiment and activity this year. Last year, the kingdom’s non-oil GDP grew by 3.3 percent.
Saudi Arabia implemented a series of precautionary measures to stem the spread of the virus. Temporary restrictions include a ban on international travel, closures of schools and events and a halt to some industrial activities.
The unemployment rate among Saudi nationals is the second-highest in the GCC at 12 percent (as of Q3 2019) and remains one of the biggest challenges for the economy with almost two-thirds of Saudi nationals working in the public sector, the report said.
The report notes that the private sector continues to struggle to create jobs for Saudi nationals despite new policies of expat levies and expat-dependent fees aimed at encouraging Saudization.
According to ICAEW, “it is likely that Saudi Arabia’s government will absorb new labour market entrants as the private sector job market falters. This will put further strain on public finances.” The latest economic update said that Saudi Arabia will temporarily pump 11.5 million barrels per day in Q2 2020, an increase from under 10 million barrels per day in recent months, and then sustain the production of 11 million barrel per day thereafter. The increase in oil production is expected to boost overall GDP growth in the kingdom to 3.8 percent.
“Saudi Arabia’s dependence on oil at a time of such volatility will certainly hinder its diversification efforts,” Michael Armstrong, FCA and ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA) said.
“But the government’s swift response in issuing a 50 billion riyal stimulus package to shore up its private sector, coupled with the G20's decision to inject over $5 trillion into the world economy during an emergency virtual meeting chaired by King Salman bin Abdulaziz Al Saud, reinforces Saudi Arabia’s commitment to delivering on it ambitious Vision 2030 goals,” Armstrong said.
In March, the kingdom announced stimulus packages totaling to 120 Saudi billion riyals ($32 billion) to offset the impact on businesses due to the coronavirus. The relief package includes a 50-billion-riyal package announced to support small and medium-sized businesses.
“While cutbacks in government spending pose a threat to the diversification agenda, Saudi Arabia does sit on a large reserve fund and could take from this should the situation worsen. How well it boosts non-oil sector activity during the coming months will determine how quickly the Kingdom is able to bounce back,” Armstrong said.
The report adds that inflation expectations are likely to slip with investment and consumption decelerating.
(Reporting by Gerard Aoun; Editing by Seban Scaria)
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