Umrah pilgrimages may provide boost to Saudi economic recovery

Even though pilgrimages will only resume at limited capacity, this will provide a boost to the recovery in the non-oil sector, Capital Economics noted

  
Muslim pilgrims wearing face masks and keeping social distance perform Tawaf around Kaaba during the annual Haj pilgrimage amid the coronavirus disease (COVID-19) pandemic, in the holy city of Mecca, Saudi Arabia July 31, 2020. Saudi Press Agency/Handout via REUTERS

Muslim pilgrims wearing face masks and keeping social distance perform Tawaf around Kaaba during the annual Haj pilgrimage amid the coronavirus disease (COVID-19) pandemic, in the holy city of Mecca, Saudi Arabia July 31, 2020. Saudi Press Agency/Handout via REUTERS

Last week, authorities in Saudi Arabia announced that the suspension of umrah, which was implemented to curb the spread of COVID-19, will be lifted in phases. The new announcement has been welcomed as a necessary opportunity for boosting the kingdom's economic recovery, UK-based economic research firm Capital Economics noted.

The kingdom is considering a three-stage plan for the gradual restoration of the pilgrimage. In the first stage, which starts on October 4, 6,000 Saudi citizens and residents will be permitted to perform the pilgrimage. In the second stage, which starts on October 18, this number will expand to 15,000.

Beginning November 1, Saudi Arabia will allow visitors from specific countries deemed safe to perform umrah at 100% of the revised capacity, until the end of the pandemic, SPA said.

"One positive factor supporting Saudi Arabia’s economy is the announcement this week that Umrah pilgrimages can resume from 4th October for those within the kingdom and 1st November for international visitors. Umrah pilgrimages have been suspended since late February and, as a key source of tourism to the kingdom, this has had a large impact on the economy this year," Jason Tuvey, Senior Emerging Markets Economist at Capital Economics said.

"Even though pilgrimages will only resume at limited capacity, this will provide a boost to the recovery in the non-oil sector over the coming months," he added.

On Friday, S&P Global Ratings affirmed its 'A-/A-2' unsolicited long- and short-term foreign and local currency sovereign credit ratings on Saudi Arabia. The outlook is stable. The stable outlook indicates that S&P expect Saudi Arabia's relatively strong government and external balance sheets to continue to support the ratings.

Low oil prices and the COVID-19 pandemic are taking a toll on Saudi Arabia's economy and budget. The kingdom's GDP is forecast to contract by 4.5 percent in 2020, and the general government fiscal deficit to rise to at 11 percent of GDP.

However, from 2021 onward, GDP growth, oil prices, and oil volume exports are expected to rebound as global conditions improve, the global ratings agency said.

S&P Global Ratings’ estimate of Saudi Arabia's relatively strong net asset position on both its fiscal and external balances is still a key support to the rating. Nevertheless, prolonged low oil prices and demand will likely erode its net asset position over the ratings horizon.

(Reporting by Seban Scaria; editing by Daniel Luiz)

(seban.scaria@refinitiv.com)

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