Question

What are the economic effects of COVID-19 pandemic on Saudi Arabia's economy (GDP growth, unemployment, inflation/deflation, fiscal deficits, net capital outflows etc)?

Answer 1

Answer: As we know that Saudi Arabia is oil rich country and its economy is petroleum based. Oil accounts 90% of the country's exports and around 75% of government revenue. The oil industry produces about 45% of Saudi Arabia's GDP. During the Covid 19 pandamic the demand for the oil decrease because most of the major consumer of oil, lockdown their economy like Indian and China. When demand for the oil reduces due to which the price of also reduces and reaches to its lowest point, due to which the revenue for the Saudi Arabia government reduces drastically. When revenue reduces the level of income also reduces, it causes over all decrease in consumption level and aggregate demand of the country reduces.

When Aggregate demand reduces due to which AD curve shift left ward. So when AD curve shif left ward, the GDP growth falls, the unemployment rate increases because, the consumption and investment of the all people reduces. Deflation(negative inflation) rises because of fall in the price level. The fiscal deficit increases because as we know fiscal deficit = total income of the government - total expenditure so when total income reduces due to which the fiscal deficit increases. Net capital outflow reduces because people income reduces due to which fund invested in abroad by the country is also reduces.