Finance Minister Mohammed al-Jadaan said that Saudi Arabia’s banks have enough liquidity to sustain the demands of the private sector irrespective of the pressures created by the coronavirus crisis and the drop in oil prices.
“I want to first stress that liquidity in the banking sector is very high… the banks are capable of managing liquidity and providing [for] the needs of the private sector,”
Mohammed al-Jadaan, Finance Minister – Saudi arabia
The downfall of oil prices coupled with decreased demand due to the coronavirus had elevated concerns of liquidity pressure.
The Institute of International Finance (IIF) concluded that oil-exporting countries in the Middle East and North Africa would see a reduction in hydrocarbon earning of $192 billion in 2020, based on an oil price assumption of $40 per barrel.
However, oil prices have fallen sharply to historic lows over the past month, as demand dropped by a third due to lockdowns and disturbance in business activity amid the coronavirus pandemic.
“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,” said al-Jadaan.
Yet, the IIF believes that Saudi Arabia is strongly positioned to face the twin blows of the COVID-19 pandemic and the crash in oil prices given its large financial cushions and low debt.
Availability of Debt
Al-Jadaan also emphasized the value of guaranteeing that the cost of debt doesn’t increase, as that would hurt not only the government but businesses and citizens as well.
“It is very important that we are alert and conscience that the cost of debt does not increase, because an increase in the cost of debt is not only harmful to public financing and the cost of servicing loans in the future but is also bad for the economy.”
He noted that the government will continue to circulate debt instruments locally and internationally based on the circumstances of the market and the cost of public debt.
“We will continue to take loans, and we have seen high demand [for] the government debt securities, internally and externally.”
The Saudi government plans to take up loans to an extent of 220 billion riyals ($58.5 billion). The Kingdom has already traded in mid-April $2.5 billion in 5-1/2-year bonds, $1.5 billion in 10-1/2-year bonds and $3 billion in 40-year bonds. It received around $54 billion in combined orders for the bonds, a sign of strong investor appetite.