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UPDATE 1-Outlook for Saudi economy remains uncertain, c. bank governor says

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DUBAI/RIYADH, Sept 9 (Reuters) - The outlook for Saudi Arabia’s economy remains uncertain, the kingdom’s central bank governor said on Wednesday, as the oil exporter navigates the effects of low oil prices and the coronavirus pandemic.

Ahmed al-Kholifey, governor of the Saudi Arabian Monetary Authority (SAMA), speaking to a virtual Euromoney event, said he was confident in the country’s financial stability and reiterated that the kingdom was committed to keeping the riyal pegged to the U.S. dollar.

“For us, in our situation, the cut in oil production and the impact of the virus, they have impacted the growth projections,” he said. “The outlook for 2020 remains uncertain.”

The International Monetary Fund has estimated the Saudi economy could contract by 6.8% this year. Saudi officials have previously said their own projections were less “pessimistic” than that.

The governor said the Saudi fixed exchange rate was one of the “overriding anchors” of stability of the financial sector in Saudi Arabia, but added caution was needed in the light of the economic stimulus that has been provided to the economy.

The Saudi central bank in March launched a 50-billion riyals ($13.33 billion) package to support the private sector. In June, it announced the injection of 50 billion riyals into the banking sector to support liquidity.

“One has to be careful when you unplug that life support, what would happen, particularly for the quality of assets,” he said.

“We feel comfortable but, again, we cannot really relax as long as we are in the midst of the crisis.”

There have been signs of resilient economic activity in the kingdom in July, including annual increases in points of sales transactions and lending to the private sector, data from the Saudi Arabian Monetary Authority showed last month.

But business conditions in the Saudi non-oil private sector deteriorated in August, with demand hurt by a sharp hike in value-added tax, a survey showed last week. ($1 = 3.7505 riyals) (Reporting by Davide Barbuscia and Marwa Rashad; Editing by Jon Boyle and Nick Zieminski)

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