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28 March 2024

Saudi central bank less affected by the global slowdown

Sama follows a conservative investment policy. (AFP)

Published
By Nadim Kawach

The Saudi Arabian Monetary Agency (Sama) has emerged almost unscathed by the global financial crisis as the bulk of its overseas investments are in US treasury bills and other safe instruments, according to independent estimates.

Sama's foreign assets had gained nearly SR467 billion (Dh458bn) in the first 11 months of 2008 before they recorded their first decline of around SR20bn in December. At the end of January, the assets lost was nearly SR28bn, Sama's figures showed.

But experts said the fall was a result of higher public expenditure by Saudi Arabia which has approved a record budget for 2009 to offset the impact of the global financial distress on its economy.

"I don't see that decline as a loss in the assets because I think the kingdom is only redirecting some of its foreign funds into the local economy to meet budget commitments, development projects and other spending requirements," Saudi economist Ihsan bu Hlaiga told Emirates Business.

Estimates by the Saudi American Bank (Samba) showed there was a loss of around $46bn (Dh168bn) in the assets of Sama, Saudi Arabia's central bank, and other government independent organisations in 2008.

But it noted that most of the decline was in assets invested by those organisations while it considered the loss as minimal compared with those suffered by other Gulf institutions, mainly sovereign wealth funds (SWFs).

It put the combined loss in GCC foreign assets at around $350bn through 2008 as a result of the global fiscal turmoil. Most of the losses were suffered by the Abu Dhabi Investment Authority (Adia), the Kuwait Investment Authority (KIA) and Qatar Investment Authority (QIA), it added.

"Adia, KIA and QIA suffered the heaviest declines of around 40 per cent, while Sama's lower exposure to equities is thought to have limited losses to 12 per cent. Despite such losses, large new additions to official foreign assets, reflecting record oil revenues during 2008, suggest that total GCC foreign assets still ended the year at around $1.2 trillion," it said.

Sama's current financial position is in sharp contrast with that during 1990s, when the Gulf kingdom reeled under low oil prices and massive fiscal deficits.

Its assets dipped below SR100bn at the end of 1998 before they started their rapid rise in the following years because of a surge in oil prices, which turned the country's budget deficits into mammoth surpluses.

By the end of 2003, the assets have swelled to nearly SR272bn. They soared to SR374bn at the end of 2004 and continued their climb to reach SR884bn at the end of 2006. They smashed through the SR1trn mark for the first time at the end of 2007 and recorded their largest increase of nearly SR513bn in 2008 to peak at SR1.7trn. "Sama has always followed a conservative investment policy as most of its assets are concentrated in safe US treasury bills away from volatile stock markets and restructured products… This has enabled Sama to preserve the value of its net foreign assets and kept it in a much better position than the other Gulf investment organisations, which have accumulated nearly 40 per cent of their assets in financial markets," Saeed Al Shaikh, Saudi Shura Council member and chief economist at the Saudi National Commercial Bank said in a lecture in Riyadh this week.

"As a result of these massive financial resources, I believe Saudi Arabia can handle the crisis even if it continues into 2011. These resources could also partly be used to cover the kingdom's public debt of around 13.5 per cent of the GDP… If all the assets are used, then the debt will be eliminated and there will be a surplus of 40 per cent of the GDP."