Saudi assets drop by SR7bn in Feb

Saudi Arabia cut its foreign assets by around SR seven billion in February for the first time in nearly eight months although oil prices have remained above $100 because of turmoil in the region, official data showed on Wednesday.

From around SR1,716 billion at the end of January, the foreign assets of the Saudi Arabian Monetary Agency (SAMA), the Gulf Kingdom's central bank, dipped to nearly SR1,709 billion at the end of February.

It was the first decline in SAMA's foreign assets since July, when they declined to around SR1,609 billion from SR1.611 billion in June.

SAMA's figures showed the decline in February was in its deposits with foreign banks as they slumped from around SR341 billion to SR318 billion.

But its investment in foreign securities swelled to nearly SR1,221 billion at the end of February from SR1,197 billion at the end of January.

Despite the decline in the total assets, they remained way above their level of around SR1,605 billion at the end of February 2010 but slightly higher than the assets of SR1,705 billion at the end of 2010.

Strong oil prices over the past years have sharply boosted SAMA's assets following a steel fall in late 1990s because of massive fiscal deficits due to weak crude prices. The assets dived below SR200 billion at the end of 1998 before they began their rapid climb in the following years.

SAMA gave no reason for the last asset fall but Saudi Arabia, the world's top oil exporter, is expected to sharply boost spending this year following King Abdullah's gigantic financial handouts to Saudis involving more than $130 billion for housing, unemployment allowances and other benefits.

According to Banque Saudi Fransi, Riyadh could use nearly SR95 billion from its foreign assets to fund this initiative this year while the rest could come from surplus funds projected to be generated from high oil prices.

BSF also expected a budget deficit this year to turn into a surplus despite higher expenditure because of higher crude prices and production.

Another bank said it expected a surplus of around SR59 billion this year as oil prices could average nearly $90, nearly $30 above the budgeted price. The country's oil output could climb by nearly 300,000 bpd in 2011.

“Although the Saudi government has announced a huge series of benefits amounting to SAR135 billion for citizens, the fiscal balance is expected to record a surplus of SR59 billion, around three per cent of GDP. Saudi Arabia is set to record historical-high figures in 2011 which will encourage further fiscal expansionary plans,” National Commercial Bank said.

Announcing its 2011 budget at the end of 2010, Saudi Arabia projected revenue at SR470 billion and spending at SR540 billion, with a deficit of SR70 billion. But the country, which controls over a fifth of the world’s recoverable crude deposits, assumed an oil price of around $58, far below the current price level of nearly $110 a barrel.

Analysts believe the budget will record a surplus in any case as oil prices are expected to be at least 35 per cent higher than the budgeted level while Riyadh would likely to exceed planned spending by nearly 20 per cent.

In 2010, the country’s public revenue leaped by 44.2 per cent from 2009 to SR735 billion, while expenditures climbed by five per cent to SR626.5 billion.

Besides eliminating the deficit, the surge in revenue allowed the government to slash its public debt by 25 per cent to SR167 billion at the end of 2010.

“A key highlight for fiscal 2010 was the government’s ability to reduce its domestic debt by a massive 25.8 per cent. Domestic debt stands at SR167 billion, or 10.2 per cent of GDP, down from more than 80 per cent in 2003,” said John Sfakiankis, chief economist at BSF.

“This demonstrates Saudi Arabia’s fiscal well-being….. as debt problems mount in many advanced economies, the kingdom has been able to finance a stimulatory spending programme and slash debt. Higher oil revenue and slow growth in imports allowed for a very comfortable current account surplus of SR260.9 billion, nearly triple the year earlier.”