Saudi, UAE roll out stimulus packages to blunt economic fallout from coronavirus
Saudi Arabia and the United Arab Emirates implemented emergency economic stimulus packages intended to blunt the growing effects of the coronavirus pandemic on their business environments and populations.
Riyadh introduced two stimulus packages totalling $120 billion riyals ($32 billion) to support its domestic economy. The Emirates rolled out several stimulus packages valued at a combined 126 billion dirhams ($34 billion).
Much of the emphasis of the packages is on buttressing the domestic banking sectors and supporting private sector businesses. The two Gulf oil producers are grappling with rising cases of coronavirus infection at the same time the governments are being battered financially by the pandemic-led drop in global oil demand, equating to as much as a 20% loss of the world’s oil consumption.
The other major factor contributing to Gulf economies' pressures is the plunge in international oil prices to historic lows spurred by Riyadh’s price war against Moscow, which was immediately joined by Abu Dhabi in support of the kingdom. Global crude benchmarks US West Texas Intermediate and UK Brent have lost more than half their values since the start of 2020.
Saudi Finance Minister Mohammed al-Jadaan said the Saudi government was reducing state expenditures by 5% — around $13 billion — to offset the economic double punch from falling oil prices and the spread of the coronavirus. Jadaan said the reduction in spending would be in sectors “with the least social and economic impact.”
Those spending cuts roughly match the amount of the $13.3 billion stimulus package announced by the Saudi Arabian Monetary Agency (SAMA) to provide financial support to the country’s private sector, particularly small and medium-sized enterprises (SMEs).
SAMA said that the programme would stimulate economic growth and preserve jobs, as it intends to “mitigate the impacts of precautionary coronavirus measures in the SME sector, specifically by reducing the burden of cash flow fluctuation.”
The package includes up to $8 billion dedicated to banks and financial institutions for deferred loan payments from SMEs for six months and another $3.5 billion to those same banks and institutions to maintain their operations and support domestic economic growth. Through a $213 million fund, SAMA will cover payment fees for all private sector stores and facilities for three months.
Riyadh later announced an additional $18.6 billion in stimulus funding, prioritising providing liquidity to the private sector. This includes postponing some private sector fee payments to the government for three months — including value added taxes (VAT), excise taxes and income taxes — temporarily exempting expat levies and delaying the collection of customs duties on imports.
The Central Bank of the UAE rolled out a $27.2 billion stimulus package with an emphasis on providing banks with funding to allow them to delay principal and interest payments for up to six months to all private sector and retail borrowers impacted by the coronavirus.
Approximately $13.6 billion of the central bank funding will provide collateralised loans at zero interest rates to lenders operating in the Emirates.
A note from credit agency Moody’s Investors Service stated that the stimulus package would “mitigate the extent of the deterioration by keeping some borrowers’ liquidity issues from becoming solvency issues.”
The central bank reduced by 15-25% the amount of capital that banks must hold for their loans to SMEs and provided first-time homeowners in the Emirates with better buying terms by having to supply less of their own capital for their real estate purchases.
The UAE cabinet followed up the initial $27.2 billion package by approving an additional $4.3 billion in relief funding to further address the economic implications of the coronavirus outbreak.
The Abu Dhabi and Dubai governments separately introduced their own stimulus packages in response to the economic toll the coronavirus is expected to have on their business communities and citizens.
Dubai announced a $408.4 million stimulus programme covering a wide number of sectors for at least three months, including freezing, reducing or cancelling government fees associated with doing business in the emirate. In addition, Dubai ordered that water and electricity bills be reduced 10%.
The Abu Dhabi Executive Council unveiled a stimulus package for the Emirates’ largest emirate totalling approximately $2.5 billion. That funding includes $1.4 billion in water and electricity subsidies for both citizens and commercial and industrial entities as well as subsidising electricity connection fees for start-ups. The government is waiving toll road charges throughout the emirate for the remainder of 2020.
In support of SMEs, around $817 million will go towards stimulating “the ability of SMEs to navigate the current market environment.” Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed al-Nahyan issued directives “to continue with all approved capital expenditure and development projects in the Emirate, as well as further measures to preserve Abu Dhabi’s economic gains, prioritising start-ups and SMEs.”