Impact of COVID-19 pandemic on some fiscal and monetary indicators in the kingdom of Saudi Arabia

6.1 Theoretical framework

In 2020, Arab Countries, including the Kingdom of Saudi Arabia, witnessed major challenges pertinent to the economic and financial repercussions of the COVID-19 pandemic due to the high cost of financial incentive packages adopted by the Saudi Government to revive economic activities, which affected revenues, expenditures, deficits and public debt. Declines in crude oil prices in world markets added extra challenge to the situation. Accordingly, the Kingdom of Saudi Arabia implemented a set of stringent measures to control the pandemic, including: curfew; travel restrictions, whether international or internal; suspending prayers in mosques; closing schools, universities and shopping centers; suspending the attendance of employees in governmental and private workplaces (with the exception of important employees); building new temporary hospitals to accommodate the possible increase in the number of patients; providing temporary housing and flights to return to the homeland for expatriates; and restricting the Hajj season to only 1000 pilgrims for the year 2020.

On May 26, 2020, a 3-phase plan was announced to drop restrictions, which led to almost reopening the economy. Umrah performance was resumed on October 4 for citizens and residents with a preliminary capacity of 30%, while the second stage started in October 18 with a capacity of 75%. On November 1, Umrah was resumed for foreign pilgrims between the ages of 18–50 years and International Travels were resumed on May 17, 2021. On June 12, 2021, the Kingdom of Saudi Arabia announced increasing attendance of the 2021 pilgrimage season, which started in mid-July, to 60,000 citizens and residents. Vaccination began in mid-December 2020, upon which more than 17.6 million doses of vaccines, or 51 per 100 people, were given.

Real oil gross domestic product (GDP) contracted by 6.7% in 2020, while nonoil real GDP declined by 2.3% in 2020, but grew by 5.6% during the second half of 2020 (compared to the first half of 2020), and by 2.9%year-over-year in Q1/2021. Recovery continued into early Q2/2021.

Through the Ministry of Finance and the Central Bank, the Kingdom of Saudi Arabia adopted stimulus packages and announced that such packages target the business sector in terms of exemption and postponing some government financial dues, extending the submission of tax declarations, as well as postponing the payment of income tax, value -added tax, selective tax and Zakat, in addition to accelerating requests for value-added tax refunds, suspending the implementation of penalties on delayed payment of installments and fines for taxpayers, postponing the payment of some governmental services' fees and municipal fees for a 3-month period, with the possibility of extending the postponement period beyond 30 days for the most affected sectors, and exempting expatriates whose resident visa has expired from financial compensation and visa fees. The KSA also adopted the initiative that the government bears 60% of the salaries of private sector workers for a 3-month period (the Arab Monetary Fund, 2021, 2022; Abd El-Moneim and Talha, 2020; International Monetary Fund, 2022).

6.2 Fiscal policy and monetary policy

Fiscal policy has several definitions, including that it can be defined as “the set of policies related to public revenues and public expenditures with the intent of achieving specific goals” (Hussein, 1988). It can also be defined as “the policy of using various public financial tools, including government revenue and expenditure programs, to bring about a change in macroeconomic variables such as national product, employment, savings and investment to achieve the desired impacts and reduce undesired impacts on economic variables, such as the national income and national product, employment rate as well as other variables (Al-Wadi and Azzam, 2000). It can also be defined as “the set of goals, mechanisms, activities and procedures adopted and implemented by the country to influence the national economy and the society to develop such society, maintain its general stability, and address existing problems” (Heikal, 1980). Fiscal policy mainly aims to achieve optimal use of economic resources to reach the level of full employment, achieve stability in the general level of prices, boost economic growth rates, redistribute income in a fair manner and achieve welfare of the society, which can be realized by implementing its tools such as: public revenues from progressive or proportional taxes; transfer payments, including transfers in the form of aid or subsidies from the government to the family sector, or support policies for the production sectors within the country, general government spending, taxes and public loan (Bilhaj, 2016).

Monetary policy, on the other hand, is defined as “the set of measures taken by the monetary authorities with the objective of influencing the economy and ensure stability of exchange rates” (Bukhari, 2010). It is also defined as “all monetary decisions and actions, regardless of whether their objectives are monetary or not, and all non-monetary measures that aim at influencing the monetary system” (Saleh, 2005). Monetary policy aims to achieve stability of prices and exchange rate, meet the requirements of economic sectors and absorb shocks caused by economic fluctuations, which can be realized by implementing its tools such as: discount rates, legal reserve, open market operations, minimum liquidity ratio, conditional advance deposits for imports, interest rate and exchange rate (Al-Hawass, 2021a, b).

Despite variations in the scope of fiscal and monetary policies' impacts on countries' economy, the effect and mutual coordination between them has effective impact on the economies of countries, where together they can affect the volume and level of aggregate demand through different channels, and thus cannot replace one another but rather coordinate to achieve economic growth, where several differences exist between them (Khalaf, 2016), including the following:

The top priority of financial and monetary policies' response is reflected in providing health expenditure, either for the health of individuals, caring for patients, reducing virus transmission, ensuring the production of medical supplies or mitigating the economic impact of the pandemic through cash transfers, wage support, tax reduction, providing liquidity to small and medium enterprises, or directing liquidity towards the most affected sectors, in addition to supporting demand, ensuring the adequacy of credit supply, and providing liquidity to balance the risk of financial stability (Werner, 2020; Georgieva, 2020a, b).

Financial and Monetary Policies' Response (International Monetary Fund, 2022): A support package for the private sector worth 70 billion Saudi Riyals (US$18.7 billion or 2.7% of GDP) was announced on March 20, 2020. The package included suspending government tax payments, fees and other dues to provide liquidity for the private sector and increase the financing available through the National Development Fund. The government reallocated the budget to increase available resources for the Ministry of Health to combat the virus.

On April 3, 2020, the government allowed the use of the unemployment insurance fund Customer Support and Monitoring System (SANED) to provide wage benefits support, within certain limits, for private sector companies that retain their Saudi employees (6 Billion Saudi Riyals accounting for 0.2% of the Saudi GDP in 2020). Restrictions on the movement of expatriate employees and their contractual arrangements have also been eased.

On April 15, 2020, additional measures were announced to mitigate impacts on the private sector, including temporary electricity subsidies for the commercial, industrial and agricultural sectors (0.9 billion Saudi Riyals).

On May 10, the Saudi Ministry of Finance announced new financial measures to increase nonoil revenues and rationalize spending including suspending the cost of living allowance for public sector employees as of June first, 2020, and raising the value-added tax threefold, from 5% to 15% as of July first, 2020.

At the end of May 2020, the General Authority of Saudi Customs announced an increase in the rate of customs duties on a range of imported goods, which entered into force on June 20, 2020.

On July 14, the Saudi Ministry of Finance launched a 670-million Saudi Riyals program to help companies defer repayment of loans due in 2020. Deferred tax payments from March 18 to the end of June, 2020, have almost been fully repaid by the end of 2020, and thus most of the financial support has been withdrawn. The wage support program through SANED unemployment insurance fund has been extended until July 2021, but only for sectors still affected by the pandemic.

The Saudi Central Bank (SAMA) has cut sovereign bond yield twice in March, and lowered reverse repo and repo rates by 1.25% points to 0.5 and 1%, respectively. On March 14, the Monetary Agency unveiled a package worth 50 billion Saudi Riyals (US$13.3 billion, or 2.0% of the GDP) to support the private sector, especially small and medium enterprises, by providing financing and guarantees to banks to allow them defer repayment of existing loans and increase lending to companies.

The Central Bank also covered the fees of all private sector stores and entities for point-of-sale (POS) transactions and e-commerce as of March 14, until the end of September. The Saudi Arabian Monetary Agency also directed banks to postpone the repayment of loans disbursed to all Saudi employees for a 3-month period, from March to June, without additional fees to provide the financing necessary for customers who lost their jobs, as well as exempting customers from various banking fees.

On June 1, the Monetary Agency announced pumping 50 billion Saudi Riyals into the banking sector through deposits to support banking liquidity and private sector credit. The loan guarantee program of the Saudi Arabian Monetary Agency expired at the end of December 2020. The deferred payments program was extended until the end of September 2021, while the guaranteed facility program was extended until March 14, 2022. No measures were taken regarding exchange rate and the balance of payments.

6.3 Review of literature

A study conducted by Ahmed and Al-Tahir (2020) concluded that the impacts were sharp in the short term due to the decline in the growth of global manufacturing, and that the services sector might be the most affected. All such factors led to the demobilization of workers and exacerbation of the unemployment crisis. As for the medium term, all scenarios, either optimistic or pessimistic, prove continuity of the pandemic's impacts on the global economy.

Another study that was conducted by Sabbagh (2020) to demonstrate the impact of the spread of coronavirus on the global economy revealed that repercussions of such crisis are the worst and the most influential compared to previous crises, where it caused negative impacts on the financial, economic and social aspects, in addition to huge human losses the world has all witnessed. However, while many economic sectors were adversely affected, such as the tourism and aviation sectors, other sectors have made gains like the pharmaceutical industry, the masks industry as well as the digital economy. It was found that the environment is the largest beneficiary of the crisis repercussions, where thousands of factories around the world have stopped pumping their toxic gases, which resulted in a noticeable decline in carbon dioxide emissions. The occurrence of changes in the mechanisms of the global economic system's map is also certain after the COVID-19 pandemic.

Moreover, a study conducted by Salah El-Deen (2020) concluded that the COVID-19 pandemic has caused severe repercussions on the global economy, as well as the Algerian economy, on which impacts of the pandemic have been aggravated by deteriorations of global oil prices and the decline in demand for hydrocarbons. The study praised Algerian economic policy's response to repercussions of the pandemic, proposed a set of solutions to enhance Algerian economy's ability to overcome repercussions associated with the crisis, and stressed the importance of the new economic model in achieving welfare and development.

The study conducted by Bozifi and Heiba (2021) concluded that global spread of the COVID-19 pandemic caused huge losses to film production and distribution companies due to the considerable decline in revenues from the global box office, as well as the decline in the value of their financial stocks after closure of more than 82 thousand cinema halls in the United States, China and countries of the European Union since early March 2020, which made major film production companies think seriously about investing more in digital and video-on-demand platforms on the internet that represented a valuable opportunity for them to realize huge profits they never realized in the past years.

A study conducted by Saadeh (2021) concluded that the COVID-19 pandemic resulted in an economic depression, unprecedented since the Second World War. Both the tourism and labor sectors have been the most affected economic sectors. The study also concluded that many sectors witnessed great recovery, especially the transformative industry sector, as a result of canceling the closure procedures and some other measures that have been taken by many governments and global economic organizations to reduce economic impacts of the pandemic.

The study conducted by Kholifi (2021) concluded that the COVID-19 crisis caused severe and negative impacts on the performance of the Tunisian tourism season for the year 2020, as 95% of the hotels were closed, and 80% of the flights were canceled despite the partial cancelation of banning international travel.

A research was conducted by Al-Karbouli (2021) to study the impact of the COVID-19 pandemic on a targeted sample of low-income individuals and day-laborer with the help of a questionnaire form, and to study some of the population characteristics (size, relative and density dispersion, as well as population growth rate), and some of the economic and social characteristics related to the research subject. Results revealed clear difference between individual's income and the nature of his work before and during the COVID-19 pandemic due to full closure by the National Crisis Management Cell, which prompted most of them to change the nature of their work due to the need and surrounding circumstances that banned the transformation or closure of some professions, such as popular food restaurants, barber shops, sellers in vegetable markets and others, where losing their daily work means losing the monthly or daily income they spend on their families.

Results of the study conducted by Ahmed and Rashid (2022) revealed contraction in the size of development projects compared to financial allocations from crude oil revenues to confront the impacts of COVID-19 pandemic, and that severity of the issue aggravated by the decline in crude oil prices, which negatively affected economic development.

A study conducted by Al-Hawass (2021a, b) concluded that monetary policy came on top of the policies that quickly responded to addressing repercussions of the COVID-19 pandemic, and that such response has been achieved by adopting a set of measures and procedures that helped increase spending on the health sector; expand cash transfers and support wages; provide support to the most vulnerable sectors, business owners and the unemployed; expand unemployment insurance and benefits; expand social aid; and defer due taxes.

A study conducted by Al-Hawass (2021a, b) concluded that monetary policy is one of the policies that rapidly responded to confronting repercussions of the COVID-19 pandemic based on measures that centered on the work of central banks to support the facilitation of financial conditions, ensuring the flow of credit to the real sector, and enhancing liquidity in financial markets, both domestic and international. Therefore, interest rates were lowered in many countries, and main central banks activated currency exchange lines and established new lines to ease pressure on financial markets. Regulatory and supervisory authorities responded to maintain financial stability and integrity of the banking system and maintain the continuity of economic activity.

The study conducted by (Saliha, 2021a, b) with the objective of trying to define the impacts of the COVID-19 pandemic on Arab countries' labor markets and associated procedures, including partial and full closure of economic institutions, in addition to analyzing labor market policies that Arab countries have followed to counter repercussions of the pandemic, where the economic crisis that resulted from the outbreak of coronavirus led to millions of workers losing their jobs, as well as the decline in job opportunities in all sectors, which greatly contributed to exacerbating the problem of unemployment due to increased number of unemployed individuals, in addition to causing harm to economic institutions or declaration of bankruptcy by a number of them.

A research paper written by Saliha (2021a, b) also aimed at studying the impacts of COVID-19 pandemic on e-commerce at the global level in general, and Algeria in particular. The paper concluded that social spacing and quarantine imposed by various countries, in addition to the wide use of the internet, increased individuals' tendency to use e-commerce, indicating that COVID-19 pandemic confirmed that electronic commerce is the most successful solution in light of the comprehensive closure procedures.