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Saudi Arabia Announces USD 31.9 Billion Stimulus Package to Mitigate the Economic Crisis Caused by the COVID-19 Outbreak

The Saudi Arabian government has recently announced a SAR 120 billion (USD 31.9 billion) financial stimulus package to mitigate the economic effects of the COVID-19 outbreak in the Kingdom. This stimulus package is made up of SAR 70 billion (USD 18.6 billion) to support the private sector and central bank’s SAR 50 billion (USD 13.3 billion) to support the banking sector.

SAR 70 billion (USD 18.6 billion) stimulus package for private sector

The government has prepared urgent initiatives to support the private sector, especially SMEs and other such economic activity most affected by the outbreak. These consist of exemptions and postponement of certain government dues to provide liquidity to private sector businesses thereby enabling them to manage the continuity of their economic activities. The highlights are:
  • Exemption from expat levy for those whose iqama (residency permit) has expired from now until 30 June 30, by extending their iqama for a period of three months without any fee.
  • Enabling employers to refund the fees of issued work visas that were not used during the travel bans, even if they were stamped on the passport or extend them for a period of three months without any charge.
  • Enabling employers to extend exit and re-entry visas that were not used during the ban on entry and exit from the Kingdom for a period of three months without any charge.
  • Enabling business owners, for a period of three months, to postpone the payment of VAT, excise tax, income tax, Zakat declarations and the payment obligations due therefrom.
  • Postponing the requirement to have a bank guarantee for collection of customs duties on imports for the next three months and setting the necessary criteria for extending the postponement period for the most affected activities as needed.
  • Postponing the payment of some government fees and municipal fees due on the private sector, for a period of three months, and setting the necessary criteria to extend the postponement period for the most affected activities as needed.
  • Authorizing the Minister of Finance to approve lending and other forms of financing as well as exemption from payment of fees and returns on loans granted until the end of 2020, under the Corporate Sustainability Program initiative.
  • Forming a committee headed by the Minister of Finance and the membership of each of Minister of Economy and Planning, the Minister of Commerce, the Minister of Industry and Mineral Resources, the Vice Chairman of the National Development Fund Board of Directors and the Governor of the National Development Fund. This committee shall have the following duties:
  1. identifying and reviewing incentives, facilities, and other initiatives led by the National Development Fund or any of its funds and banks, with the aim of mitigating the exceptional and unprecedented economic situation, in light of the implications of the outbreak, the impact of the precautionary measures taken by the Kingdom's government and the low oil prices.
  2. setting the criteria of designing and applying initiatives and their details.
  3. identifying the amounts that will be used to support these initiatives from the resources available at the funds and banks under the National Development Fund for this purpose and as needed.
  4. the committee may conduct transfers between these funds and banks and the Saudi Export-Import Bank as needed.
  5. the committee may direct both, the Kafala program and the General Authority for Small and Medium Enterprises Monshaa’t, to develop the necessary initiatives to support the objectives during this exceptional period, and to support them from the available resources at the funds and banks under the National Development Fund as needed.
SAR 50 billion (USD 13.3 billion) stimulus package for banking sector

The SAR 50 billion (USD 13.3 billion) package by Saudi Arabian Monetary Authority (SAMA) aims to support the banking sector, financial institutions and SMEs. The package will focus heavily on providing financial support for SMEs impacted by the pandemic. Up to SAR 30 billion (USD 8 billion) will be earmarked for banks and financial institutions for deferred loan payments by SMEs for a period of six months. SMEs will also be granted concessions of up to SAR 13.2 billion (USD 3.5 billion) from banks and financial institutions to maintain operations, contribute to economic growth and maintain employment. Banks and financial institutions will further use a fund up to SAR 6 billion (USD 1.6 billion) to exempt SMEs from the costs loan guarantee programs. An additional SAR 800 million (USD 213.33 million) will be used to cover payment fees for all private sector stores and facilities registered in the national system for a period of three months.

SAR 12 billion (USD 3.2 billion) stimulus package by Saudi Social Development Bank

In addition to the government’s SAR 120 billion (USD 31.9 billion) package, the Saudi Social Development Bank (SSDB) has also announced a SAR 12 billion (USD 3.2 billion) to support owners of small and emerging enterprises in priority sectors, in addition to low-income families. The fund allocated by SSDB, with support of the National Development Fund, includes the following five tracks:
  • The first track consists of SAR 4 billion (USD 1.06 billion) to support low income families in 2020.
  • The second track consists of SAR 2 billion (USD 533 million) to support 6,000 entrepreneurs in launching their development projects within micro and small enterprises.
  • The third track consists of SAR 2 billion (USD 533 million) to support 1,000 small and medium health facilities.
  • The fourth track consists of SAR 2 billion (USD 533 million) to contribute to the financing of 50,000 small local facilities.
  • The fifth track extends the deadline for all entrepreneur projects which were financed in 2019 and 2020 by six months, and will allocate SAR 2 billion (USD 533 million) for all deferred payments
The above initiatives are a sigh of relief for businesses that have been adversely affected due to the ongoing pandemic and volatile oil prices. The above measures will reduce excessive market volatility and provide businesses with increased flexibility to act in their best interest. The measures will also prevent businesses from defaulting on their debt obligations and avoid insolvency as the outstanding loan payments (principal and interest payments) have been deferred to later dates.

The stimulus package provides a great deal of financial protection for SMEs. Although still in their infancy, SMEs have grown in their importance in the Kingdom and are essential to boost the non-oil areas of the national economy.

While we await further clarity from the Saudi government on the above measures in the coming days, the stimulus package will significantly benefit citizens and businesses alike as the Kingdom struggles with 21-day lockdown, which is expected to go on further, fluctuation in crude oil prices and possible suspension of Hajj pilgrimage this year. It seems certain that both regional and global financial markets will have several stressful periods in the months ahead, and that further stimulus packages will be required to aid them over this difficult period. The need is for the government and its policymakers to be flexible and adaptable, and to have resources in hand to cope up with the drastic changes brought about by the global pandemic.
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