COVID-19 and lower oil production levels and prices are weighing heavily on the economy and fiscal position, despite sizable fiscal and monetary mitigation measures. The 2020 outlook remains very weak with medium-term recovery dependent on global economic rebound and eventual containment of the pandemic. Medium-term fiscal deficits are estimated to continue, leading to a rapidly rising public debt trajectory. The prospects for successful diversification are complementary to a stable fiscal framework that is well-signaled to the private sector.
GDP growth is expected to contract by 5.4% as oil production levels are kept around OPEC+ commitment. Growth in non-oil sectors will inevitably be depressed due to the significant capital spending cutbacks, continuation of social restriction measures, and households’ adjustment to the VAT increase.
Authorities are gradually lifting stringent public health measures, enabling a pickup in activity. Many countries have seen such steps lead to higher cases from COVID-19. A spike in new cases would likely see reimposed containment measures; further hurting businesses, employment, and vulnerable groups. Oil prices have partially rebounded from their April lows largely owing to the revival in global demand and constrained supply through OPEC+ agreement. Compliance to quotas by member states is critical in keeping a floor under prices and the agreement intact, and the Kingdom has signaled its frustration both with non-compliance and financial market expectations of another plunge in oil prices.