Saudi assets gain SR50 bn in May

Strong oil prices allied with an increase in crude production to boost Saudi Arabia’s foreign assets by nearly SR50 billion ($13.3 billion) in May and push them to their highest ever level, official data showed on Thursday.

Analysts said the increase in May and in previous months during 2011 indicates the world’s dominant oil power is earning more than spending and this means a budgeted fiscal deficit could turn into a surplus if crude prices remain high.

From SR1,806.7 billion ($482 billion) at the end of April, total foreign assets controlled by the Saudi Arabian Monetary Agency (SAMA), the Gulf Kingdom’s central bank, soared to a record high of SR1,856.2 billion ($495 billion) at the end of May, SAMA said in its monthly bulletin for May.

The increase meant that Saudi Arabia’s foreign assets swelled by a whopping SR140 billion in the first five months of 2011, the biggest increase in such a period of time, according to financial analysts in the country.

The surge was a result of a sharp rise in oil prices, which averaged nearly $109 in May, nearly $50 above Saudi Arabia’s budget forecasts. The country’s oil production has also risen to close to nine million bpd from around 8.3 million bpd through 2010 as the Kingdom sought to offset disruption of supply from Libya.

A breakdown showed SAMA’s deposits with banks abroad grew from around SR344.5 billion at the end of April to SR360.1 billion at the end of May. Investment in foreign securities swelled from SR1,267 billion to SR1,293.8 billion.

Foreign currencies and gold gained around Srthree billion to reach SR154.3 billion at the end of May compared withy SR151.8 billion at the end of April. Other miscellaneous assets grew to SR24 billion from SR21.2 billion.

Saudi Arabia’s foreign assets have steadily grown in most of the past few years as a result of higher oil prices, gaining nearly SR135 billion through 2010.

They recorded one of their largest increases of nearly SR513 billion during 2008, when oil prices climbed to their highest annual average of nearly $95 a barrel. But a sharp fall in crude prices depressed them by SR139 billion in 2009 to widen the actual budget shortfall to nearly SR87 billion following a record high surplus of nearly SR580 billion in the previous year.

In 2010, the budget reverted into a surplus of SR109 billion after oil prices increased by at least $15 a barrel. For 2011, Saudi Arabia announced another record high budget of SR580 billion for 2011, with a deficit of SR40 billion.

But analysts believe the shortfall will again revert into a surplus at the end of the year on the grounds the oil price assumed by Riyadh of just under $60 will be far below the expected actual price. In the first five months of 2011, crude prices averaged as high as $100 a barrel and could be far higher through the year because of recovering demand and political unrest in the Middle East and North Africa, where oil supplies by OPEC member Libya have been totally disrupted because of the current internal fighting.

According to National Commercial Bank (NCB), Saudi Arabia’s largest bank, the 2011 deficit could turn into an actual surplus of around SR77 billion.

“We believe that revenues are underestimated, and the government will still manage to record a surplus in 2011. With our forecast of $80 for the average Arabian light spot prices and an 8.5 million bpd for average oil production in 2011, we project revenues and expenditures at SR753 billion and SR677 billion, respectively. This would lead in turn to a budget surplus of SR77 billion, or 4.2 per cent of estimated GDP in 2011,” NCB said.

It expected actual expenditure to be overshot by around 17 per cent through the year as the government is pursuing post-crisis fiscal expansionary measures, which are aimed at supporting the economy.

But in another study, Banque Saudi Fransi said it expected overspending to be far high, putting it at about 45 per cent, following the announcement of a massive financial handout for citizens by King Abdullah over the past few weeks.

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