Saudi Arabia to slash spending by 5% as oil prices fall

DUBAI, United Arab Emirates (AP) - Saudi Arabia said the government will cut spending by 5%, or about $13.3 billion, to offset the impact of plunging oil prices and the effects of the new coronavirus on its economic outlook and deficit.

In a statement carried by the state-run Saudi Press Agency late Wednesday, Finance Minister Mohammad Al-Jadaan said additional measures would be taken to deal with the drop in oil prices, but he did not elaborate further.

Saudi Arabia has around $500 billion in foreign reserves, but with oil prices plummeting to around $26 a barrel and tourism revenue drying up due to a suspension of the Muslim pilgrimage to Mecca, it was expected the kingdom would make cuts to its spending. Oil prices plunged as Saudis moved to flood the market and dominate sales amid a slowdown in demand for oil worldwide.

Saudi Crown Prince Mohammed bin Salman has been racing to diversify the economy away from reliance on oil for revenue. Despite broad efforts at transforming the economy, the country continues to rely on higher oil prices of around $80 a barrel to balance its budget.

Al-Jaadan said the government approved a partial reduction in spending in areas 'Å“with the least social and economic impact." He did not give specific details on where the spending cuts would happen.

The kingdom, which leads one of the world's 20 biggest economies, relies heavily on government spending to fuel its economy and pay the salaries of most Saudi citizens who work in the public sector.

Saudi Arabia has already announced a roughly $13 billion stimulus package to support the private sector and extend financing to small and medium-sized businesses impacted by the virus, which has affected countries around the world.

The kingdom has halted all commercial flights and closed its borders to travelers to slow down the spread of the virus, which has infected nearly 240 people in the country. The government also ordered most public and private sector employees to work from home for two weeks, and closed schools, universities, restaurants, malls, entertainment venues and even mosques, while keeping food delivery, grocery stores and pharmacies operating.