Saudi Economy Post-Pandemic Prospects

Ahmad AL khateeb

Starting in the Fiscal Year 2014, the Saudi economy entered a stage of uncertainty, as the oil prices have begun the downward trend,
especially the general budget kept a deficit exceeding 15%, in the Fiscal Year 2015.

International media, in addition to the credit rating agencies, have developed pessimistic views on the future of the Saudi economy and the government ability to fulfill its obligations.

Oil prices, on the other hand, did not actually recover until 2018, however, only for a while, not long before they returned to fluctuation and then outright collapse, with the advent of the Coronavirus pandemic.

Back to the 2015 reports, we would find a gloomy picture with disasters that were warned of visiting the world, the deteriorating situation in the oil markets as well as political tensions over the past years.

How was all these were avoided?

At the outset, it must be mentioned that Saudi finance was good enough, with excellent capital reserves, low debt levels and a strong banking sector.

These might be useful to face potential and casual crises, but not sufficient to face off prolonged or recurring crises’ impact.

Since the Vision 2030 was announced, aiming to change the structure of the economy, via reducing dependence on oil revenues, in order to avoid any potential crises that may be caused by low prices and the market conventional volatility.

But the economic reform in normal conditions differs from it, in the light of successive crises.

Even the most pessimistic perspective, in terms of the Vision 2030, was not expecting that oil prices would continue to collapse, to be followed by an unprecedented global pandemic, that almost paralyzed and deflated the global economy.

Success, during exceptional circumstances or contingencies, requires working in a non-exceptional way, and that is very difficult.

To clarify the nature of the exceptional circumstances and their difficulty, we can summarize them in several following points:

1 – The economy, at the outbreak of the Coronavirus, was under pressure compelling it to record successive annual deficits, while trying to focus on changing the vision detailed programs.

2 -Health related risks arising from the pandemic, especially the pressures on the sector, which in turn was going through a stage of development.

3 – Closures and constrictions that pressured various business sectors.

4 – Continuous collapse in oil prices, all that meant furthermore additional deficits would be expected, in the post-Coronavirus period, with no an iota of a glimpse of hope, at the end of the tunnel of the exceptional conditions related to the pandemic, as it was deemed to continue.

What happened was that all circumstances were faced off with great flexibility and confidence, in the long-term goals, so a balance was struck, making decisions to preserve the gains and the ability to continue working after the end of the circumstances.

It is necessary to recall some details, because the norm is that, whenever we are to obtain final results, we usually forget the difficulty of realizing them:

First, the Public Investment Fund, or the sovereign wealth institution, that is the most important pillar of Vision 2030, have continued to implement its plans and strategies, and was even ready to take advantage of the opportunities that arose in the markets, local, regional and worldwide, alike.

Such process included redistribution of some ownership, in several companies

Second, the role of the international debt market, in general, and the bond as well as Sukuk market,  was activated to balance the withdrawal from the capital reserves, taking the advantage of lower interest rates.

It should be noted here that the government work in those markets, has moved to a better professionally business-wise administration trend than old fashion bureaucratic one, longstanding before.

Third, dealing with oil markets and managing oil production decisions, through in OPEC and OPEC +, with the accompanying complex political work.

Fourth, many laws and legislations related to investment, labor market, trade, tourism and others environments, were reviewed, streamlined and revamped.

Fifth, the continuation of changes related to the social conditions, in different domains.

Sixth, activating anti-corruption, administrative and financial, in particular,  procedures and mechanisms.

These are some of the main headings, whose implementation needs economic stability, to be focused on, tested and verified.

In short, that means their application, during exceptional situations, need likewise management.

There is no doubt that some decisions were so painful to make or to take, as they are unpopular, but the lesson concluded, always lies in the final result, which consequently needed to maintain the long-term view and continue to support fruitful working on it.

The Saudi government expects to record a surplus, in the Budget Year 2022, as excellent progress through the structural changes, in the economy, have contributed to realize.

In addition to the improvement in oil prices and the growth of non-oil sectors. . However, it must be taken into account, that the expected surplus does not compensate for the total previous deficits, so far, despite this the implementation of economic and financial reforms shall continue, to fill the gap.

I think that the most important thing to celebrate is the change in the techniques adopted for the task, flexibility in decision-making, downsizing the bureaucracy, as well as the clarity of strategic objectives’ set.

There is still a lot of difficult work to face, but it is the approach adopted to work it out, that gives confidence, in the possibility of reaching desired results, for a very bright promising future.