Saudi Arabia’s economy will survive coronavirus better than UK, Mexico, Russia

Saudi Arabia’s economy is better positioned to manage the coronavirus pandemic’s impact when compared to the UK, Russia, Mexico and Brazil, said Samir Assaf, Chairman of Corporate and Institutional Banking at HSBC on Tuesday.

“There is no doubt that Saudi Arabia is facing an extremely challenging outlook for the next 12 months. We expect at HSBC the GDP to drop by 5.9 percent this year, probably the deepest contraction ever,” Assaf said.

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The Kingdom slipped into a $9 billion budget deficit in the first quarter, and its central bank foreign exchange reserves fell in March at their fastest rate in at least 20 years and to their lowest since 2011.

However, the banker pointed out that other major economies will suffer worse contractions.

The UK’s GDP will drop by 6.8 percent in 2020, Russia’s will drop by 6.1 percent, Brazil’s will drop by 7.3 percent and Mexico’s by 9.0 percent, Assaf said.

He also praised the fiscal measures the Kingdom’s government took to mitigate the impact of the COVID-19 crisis, and said that increasing Value Added Tax (VAT) was a “step in the right direction, despite the strain it would have on the economy and the consumers in the short term.”

He also said that other Gulf countries should follow suit to level the playing field.

Saudi Arabia had announced on May 10 increasing VAT from 5 percent to 15 percent starting from June 1, as part of a spending cut of 100 billion riyals ($26.6 billion).

Investor confidence

Saudi Arabia had issued $7 billion in dollar-denominated bonds in April, and the President of the National Debt Management Center in the Kingdom, Fahad al-Saif, said that the issuance was more than seven times oversubscribed.

Al-Said said that was a “testament to the ongoing international capital market access and intact investor confidence.”

The Deputy of Investor Services at the Kingdom’s Ministry of Investment, Ibrahim al-Suwail, said that Saudi Arabia has signed several deals since the pandemic began and is continuing to develop investment opportunities across all sectors.

“We are confident that businesses will keep coming to Saudi Arabia as investors gauge momentum and activity recovers and adapts to the post-COVID-19 era,” he added.