Saudi foreign assets to peak in 2010

Strong oil prices and a production rise will likely expand Saudi Arabia’s official foreign assets to their highest level at the end of 2010 and they could swell further in 2011, a key investment firm in the Gulf Kingdom has said.

From around $474.2 billion at the end of 2009, the assets controlled by the Saudi Arabia Monetary Agency (SAMA) and affiliated establishments are projected to climb to nearly $518.5 billion at the end of 2010, Jadwa Investments said.

The assets could continue their rise to reach about $550.3 billion at the end of 2011, their highest ever level, the Riyadh-based company said in a study.
Citing official data, the study showed the assets, mostly in securities and bank deposits in the West, hit a record high of around $502 billion at the end of 2008 after Saudi Arabia basked in its highest fiscal surplus of nearly SR590 billion because of a sharp increase in crude prices.

The rise in prices to their highest average of more than $95 a barrel fetched Saudi Arabia its largest income of nearly $1,100 billion in 2008 before they plummeted to around SR505 billion in 2009 due to lower crude prices.

Jadwa expected the Kingdom’s oil export revenues to swell to around $190.6 billion in 2010 from about $162.6 billion in 2009 on the back of an increase in average oil prices to $71.3 from $60.5 a barrel. It projected the earnings to maintain their growth and reach $196 billion in 2011 as a result of an increase in oil prices to $74.8 and in the Kingdom’s crude output to nearly 8.4 million barrels per day from 8.2 million bpd in 2010 and an average 8.1 million bpd in 2009.

The surge will allow Saudi Arabia to turn a budgeted deficit of SR70 billion this year into a surplus of SR67 billion. The budget is forecast to record even a bigger surplus of around SR91 billion in 2011, the report said.

Besides creating financial surpluses, the surge in crude prices has also enabled Saudi Arabia, the world’s oil powerhouse, to slash its public debt to around SR237 billion at the end of 2009 from SR267 billion at the end of 2008. The debt had hit a record high of SR690 billion in 1999 to exceed the country’s GDP.

Jadwa said the fall in the debt depressed its ratio to GDP to 13.3 per cent in 2008 from as high as 82 per cent in 2003. But it rebounded to 16 per cent in 2009 because of a sharp decline in Saudi Arabia’s GDP.

The report forecast the government debt to slump to around SR220 billion at the end of 2010, nearly 13.7 per cent of GDP, and to SR205 billion at the end of 2010, accounting for around 11.8 per cent of GDP.

SAMA’s assets were as low as SR619 billion at the end of 2005 before they began their rapid climb due to the surge in oil prices. They shot up to SR884 billion a year later and continued their gallop to reach SR1,570 billion at the end of 2009. At the end of July, they swelled to nearly SR1,620 billion.

A local bank study released last month showed Saudi Arabia, which sits atop  more than a fifth of the world’s extractable crude deposits, controlled more than SR1,800 billion in net foreign assets at the end of 2009, far higher than its GDP.

The assets, controlled  by SAMA, the country’s central bank, as well as local banks and other Saudi institutions, also largely surpassed the broadest money supply (M3) in the Kingdom, showed the study by National Commercial Bank.

It said the steep rise in those assets, nearly triple their level at the end of 2005, was a result of a surge in the value of the country’s hydrocarbon exports because of strong crude prices and relatively high Saudi oil output.

“The process of accumulating foreign exchange (FX) reserves in Saudi Arabia is largely linked to exports earnings that are partly invested abroad and partly brought home for spending by the government,” it said.

“Similarly, non-oil export earnings that accrue to the private sector undergo the same process. The spending in terms of Riyal by the government or private sector becomes income of the private sector, by subtly entering into the monetary system as bank deposits or currency in circulation, defined as broadest money supply (M3)….the Kingdom's rules require that each Riyal issued by SAMA to be fully convertible into FX or gold.”

Its figures showed that by end of 2009, net-foreign assets collectively held by SAMA, Saudi commercial banks and other local institutions reached around SR1820 billion (Dh1,802 billion), nearly 31.5 per cent more than the overall size of the 2009 GDP of SR1384.4 billion while they accounted for around 177 per cent of M3 of about SR1028.9 billion.
 

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