Saudi assets to gain more than $40bn in 2010

Strong oil prices are expected to boost Saudi Arabia’s foreign assets by more than $40 billion by the end of 2010 while its fiscal position will rebound into a surplus, a key investment firm in the Gulf kingdom has said.

After losing around $28bn in 2009 because of lower hydrocarbon export earnings, the net foreign assets of the Saudi Arabian Monetary Agency (Sama), the country’s central bank, are projected to climb by nearly Dh41.3bn to around $515.5bn at the end of 2010, the Riyadh-based Jadwa Investments said.

The reserves will likely continue their ascend to reach a record high of around $544.6bn at the end of 2011 as the world’s oil superpower is expected to earn more from crude sales because of higher prices and production.

Sama’s reserves recorded their biggest increase at the end of 2008, when they leaped by nearly $143bn in just one year after the kingdom basked in its highest ever fiscal surplus of around SR581bn.

The surplus was recorded after oil prices peaked at an average $95 a barrel through 2008 and Riyadh was pumping as high as 9.2 million bpd of oil.

Output plunged to about 8.1 million bpd in 2009 and is projected by Jadwa to edge up to nearly 8.2 million bpd following the Kingdom’s decision to slash crude supplies by over one million bpd in line with OPEC’s collective agreement in late 2008 to trim production to reverse a post-crisis decline in prices.

Jadwa expected Saudi Arabia’s oil output to rebound to nearly 8.4 million bpd in 2011 as demand is expected to pick up, driven by global economic recovery.

It projected the price of Saudi Arabia’s crude to climb from around $60.5 a barrel in 2009 to about $71.3 this year and $74.8 in 2011.

The improvement in the oil income will allow the Kingdom, which controls over a fifth of the world’s proven oil deposits, to return to a fiscal surplus of around SR22bn this year after recording a deficit of SR87bn in 2009. Higher oil prices in 2011 could further push up the surplus to around SR42bn.

The report estimated Saudi Arabia’s oil export earnings at nearly $191.1 billion this year, an increase of around 17 per cent over the 2009 revenue of nearly $163.1bn. The income is expected to swell to $197.1bn in 2011 but it remains far below the record earnings of $281bn in 2008.

It showed the budget would record a surplus despite a sharp rise in actual expenditure to SR604 billion from a projected SR540bn.

But the report forecast total actual revenue to leap to SR625 billion from a forecast SR470 billion. The fiscal balance was officially forecast to be in a SR70bn deficit compared with a SR87bn shortfall in 2009, the kingdom’s first negative fiscal balance since 2002.

The report expected stronger finances to depress Saudi Arabia’s public debt to nearly SR220bn at the end of this year and SR205bn at the end of 2011 compared with about SR237bn at the end of 2009. This will push the debt’s ratio from 16 per cent of GDP in 2009 to 13.7 per cent in 2010 and 11.8 per cent in 2011, its lowest level in more than 15 years.

Heavy borrowing by Saudi Arabia to finance the budget shortfall during the 1990s because of low oil prices sharply boosted its domestic debt, which surpassed its GDP in late 1990s before it started its rapid fall in the following oil boom years.
From around SR660bn at the end of 2003, the debt plunged to SR614bn at the end of 2004 and SR475bn at the end of 2005. It maintained the quick decline to reach SR267bn the end of 2007 and SR237bn in 2008.

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