Economic Brief: H1 2020 Budget Update
The COVID-19 global pandemic has forced governments to grapple with significant social and economic changes in a short period of time. Saudi Arabia confirmed its first case on March 2 and subsequently instituted widespread curfews and lockdown measures as global coronavirus cases grew exponentially in the second quarter of 2020. Daily new cases started to decline in mid-May but increased rapidly through the month of June. However, the number of cases has been steadily declining since July. The Kingdom has reported more than 300,000 coronavirus cases with a 91 percent recovery rate.
The impact of COVID-19 and the OPEC+ oil production impasse led to a significant drop in oil demand in the first half of the year (H1). Saudi Arabia registered a 35 percent drop in oil revenues and a 37 percent decline in non-oil revenues on an annual basis as nearly every sector was impacted by the pandemic. The Kingdom posted a Q2 deficit of SAR109.2 billion ($29.1 billion), leading the mid-year budget deficit to SAR143 billion ($38.2 billion) which exceeds the total deficit from last year. Expenditures fell 8 percent in the first two quarters of the year after the government announced it would cut 10 percent from budgeted 2020 spending.
Fiscal and monetary stimulus measures exceeding SAR270 billion ($72 billion) were instituted to support the Saudi economy and labor force. To bridge the financing gap, the government reduced capital expenditure spending by SAR32.8 billion ($8.7 billion) in H1 compared to last year, drew down SAR48.7 billion ($13 billion) in foreign reserves, and borrowed SAR85.7 billion ($22.8 billion) from local and international debt markets.