Economy

Saudi aims to weather storm as it marshals G20 through once in a lifetime recession

Key Points
  • G20 finance and central bank chiefs met Saturday and pledged to "use all available policy tools to safeguard people's lives, jobs and incomes" as the coronavirus pandemic continues to wreak havoc on the global economy. 
  • Saudi Arabia's economy, the largest in the Middle East, was forecast to shrink by 6.8% this year, according to the IMF.

 

Saudi Arabian Finance Minister Mohammed al-Jadaan attends the G20 Finance Ministers and Central Bank Governors Virtual Meeting in Riyadh, Saudi Arabia, on March 31, 2020.
Xinhua News Agency

Saudi Arabia pledged to protect its economy while ramping up international cooperation as G20 policymakers face growing pressure to mitigate the impact of the deepest global recession in decades. 

"The world is still living through COVID-19 and there is a lot of uncertainty around, but I am optimistic as always," Saudi Arabia's Finance Minister, Mohammed Al-Jadaan, told CNBC's Hadley Gamble at the conclusion of the G20 Finance Ministers and Central Bank Governors meeting on Saturday.

"Saudi has weathered an even worse oil crisis in the past and worse geopolitical situation in the past," he said. "We recovered strongly, as this is not going to be an exception."

G20 finance and central bank chiefs met Saturday and pledged to "use all available policy tools to safeguard people's lives, jobs and incomes" as the coronavirus pandemic continues to wreak havoc on the global economy. 

"We are watching what's happening in the world," Al Jadaan said, highlighting that the G20 group is prioritizing its efforts to support the global economic recovery and enhance the resilience of the financial system.

"People are pushing for reopening, but we need to be cautious and careful because at the end of the day, people's lives and peoples livelihoods is what matters," he added.

Saudi Arabia's economy, the largest in the Middle East, was forecast to shrink by 6.8% this year, according to the International Monetary Fund. It's a sharper decline than the 2.3% contraction estimated in April.

"In 2020, like every country around the world, we are likely to see negative growth," Al Jadaan said, adding that he expects the contraction in the Saudi economy to be "much less" than the IMF forecasts.

"We are seeing a very healthy pickup, but we are remaining vigilant and we want to see how things develop throughout the third quarter," he said. "We will weather this and we will come out stronger." 

G20 prioritizes debt relief action

The finance and central bank chiefs are being pressured deliver economic progress in the midst of the global pandemic. In reports released last month, the IMF forecast the world economy to contract 4.9 percent this year, while the World Bank said a 5.2% contraction was likely.

"Due to the continuing impact of the COVID-19 pandemic, the global economy faces a deep recession this year, with partial and uneven recovery expected in 2021," IMF Managing Director Kristalina Georgieva said. 

With the pandemic forcing governments to combat funding challenges with fewer fiscal resources, the World Bank and the IMF have urged G20 leaders to extend the time frame of the Debt Service Suspension Initiative (DSSI) – a program that allows poor countries to delay repayments to better allocate their financial resources to fighting the virus.

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"When the COVID-19 shock started, we worked with G20 members to ensure that we respond and respond strongly. We know that the shock didn't hit everyone equally – the most vulnerable countries have been impacted more," Al Jadaan said.

"This is why we responded very swiftly by launching the DSSI, so that low income countries can have some breathing space with debt suspension. We also worked to bridge the financing gap in the global health sector, and provide and pledged over $21 billion to bridge that gap," he added.

The G20 group said an estimated $5.3 billion has been requested to be deferred as of Saturday by 42 developing countries, and more are likely to follow. A decision to extend the debt program will be made later in the year.

It comes as The World Bank warns that debt burdens – already unsustainable for many countries – are rising to "crisis levels" as poor countries combat rapidly rising poverty rates, falling median incomes and negative growth.

"The situation in developing countries is increasingly desperate. Time is short. We need to take action quickly on debt suspension, debt reduction, debt resolution mechanisms and debt transparency," said David Malpass, World Bank Group President.

G20 Leaders are scheduled to meet for the conclusion of the summit in November.