The year 2020 was rife with extraordinary developments. From the Saudi perspective, there is a vast difference from the positive time when it assumed the presidency of the G20 in late November to the emergence of the coronavirus “hurricane”. The situation was compounded by a weak job market and geopolitical regional tensions.
However, despite the enormous challenges, Saudi Arabia handed over the presidency of the G20 to Italy after successfully and flawlessly carrying out its mission. The summit tackled pressing economic, financial, trade, environment and technical issues. It was year weighed down by the pandemic and the major responsibility of hosting the G20 summit.
Saudi Arabia handled the responsibilities admirably. The Saudi team and G20 General Secretariat adopted the mentality that opportunity emerges from hardships. Saudi Arabia proved that cooperation between the members of the G20 amid the pandemic was important more than ever. The pandemic demanded that the members address how to protect mankind and people’s way of life. They addressed means to ease the impact of the pandemic and preparedness to confront future emergencies of this scale and more.
Realizing the danger of the pandemic, Saudi Arabia hosted an extraordinary virtual G20 summit on March 26. The event in itself was a precedent as it was the first time that the G20 holds two meetings under the same presidency. The summits in March and November demonstrated the high level of responsibility Saudi Arabia displayed in tackling regular and extraordinary world affairs. It left no issue unaddressed, giving everything its utmost attention in an effort to seize the opportunities of the 21st century to empower man, protect the planet and form new horizons.
Coronavirus
Before 2020, Saudi Arabia had unveiled an ambitious budget that estimated revenues at 833 billion riyals and expenditure at 1.020 trillion riyals. It predicted a deficit of some 187 billion riyals or 6.4 percent of its GDP.
The Saudi economy suffered from the pandemic similar to all other economies. Its economy shrank by 7 percent during the second quarter due to a drop in economic activities. It was hurt further with the contraction of oil market by 8.2 percent.
The impact of the pandemic on the economy was most felt during the second quarter and continued to a lesser degree into the third. This demonstrated in how despite authorities tripling the Value Added Tax, revenues in the third quarter increased by only 37 percent compared to the same time in 2019.
We must not ignore the dramatic drop in oil revenues to less than 100 billion riyals in the third quarter. This was unprecedented in the 70 years throughout which oil was the main source of revenue for the Kingdom’s treasury.
Remaining challenges
The current challenge focused on how to fill the deficit amid a drop in oil revenues and the decline in non-oil economic activities. During the first three quarters of 2020, the deficit reached 184 billion riyals. Three-fifths of the deficit was met in the second quarter, at the peak of the pandemic shock.
To tackle the financial challenges, Saudi Arabia implemented a number of economic measures and introduced a package of initiatives. International estimates predict that Saudi Arabia’s economy will grow. This is backed by high levels of spending at trillion-riyal rates for the past four years. Capital spending had also not ceased amid the pandemic.
The 2021 budget reveals a goal to achieve financial balance. After noting a deficit of some 298 billion riyals in 2020, the estimated deficit for 2021 is expected to drop to around 141 billion riyals. The hopes are for the figure to continue to drop to 13 billion riyals by 2023.
Overall, the success of an economy in the post-pandemic world depends on productivity and how many dollars can be generated in an average one working hour in any economy. That shows the level of competition of a country. The Saudi average production rate remains lamentably far behind that of members of the Organization for Economic Cooperation and Development.
Before being confronted with the pandemic, Saudi Arabia and its Vision 2030 had changed many concepts that were believed to be unchangeable. Of course, change for the sake of change is not justified, but change here underlines the fact that life exists after the end of the oil era.
Five years ago, Saudi Arabia presented its Vision 2030 with 96 goals each posing a major challenge. The economy is witnessing a rewriting of the rulebook, which will ultimately lead to the restructuring of the entire economy. It will become an economy that is based on productive activities and investment. It will create jobs for the citizens, meet local demand and compete globally.
Dr. Ihsan Ali Buhulaiga is an economic expert and former member of the Saudi Shura Council.
