Coronavirus, oil war and a Hajj in doubt: Saudia Arabia’s triple whammy

In March, Saudi Arabia told Muslims all over the world not to be in a rush to buy airplane tickets for the hajj pilgrimage to Mecca. The closure of the holiest sites of Islam, along with the banning of Muslim public prayer and the shuttering of mosques has made it clear just how powerful the religious blow inflicted by the coronavirus has been on Muslims.

It’s still too early to know whether this year’s hajj, which is scheduled for the end of July, will be canceled or whether in a post-coronavirus period, Saudi Arabia might permit all or some of the 2 million pilgrims to come and fulfill one of the fundamental obligations of Islam.

It’s not just an epidemiological dilemma. Its financial implications are also enormous. The pilgrimage during the hajj season and the other periodic occasions during the year have generated annual average revenues of about $16 billion in recent years – about 5 percent of Saudi Arabia’s gross domestic product. Thousands of Saudis, including staffers, hotel owners, business owners, guides, drivers, supervisors and maintenance people rely on the hajj season as a critical source of income – and tens of thousands of people living elsewhere in the Islamic world also make a living in connection with the pilgrimage.

Saudi Arabia had announced that it would be diversifying its revenue sources as part of its Saudi Vision 2030 plan, an effort to reduce its dependence on oil revenues, but it could now find itself facing a shattered dream in this regard if the hajj does not take place this year.

This is not the only misfortune that the pandemic has inflicted on the kingdom. Saudi Finance Minister Mohammed al-Jadaan told the Saudi television station Al Arabiya that it will be necessary to impose belt-tightening for at least the next year, meaning a reduction in nonessential expenditures, in order to continue providing basic services to the country’s citizens. In addition, Saudi Arabia will have to borrow about $50 billion from international institutional lenders. That’s almost twice as much as it planned to borrow before the coronavirus outbreak and follows forecasts that revenues could shrink by more than half.

Jadaan calmed matters, promising that bank liquidity was not at risk and that customer deposits were guaranteed. And when it comes to foreign currency reserves, even if they have shrunk due to the enormous investment in projects that are part of the vision plan for the coming decade, the reserves still provide a long-term cushion for ongoing spending. But Jadaan failed to explain what he meant when he talked about reducing nonessential expenditures.

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