Saudi foreign asset growth set to slow

Saudi Arabia’s foreign assets surged by a whopping SR134 billion ($35.7 billion) in the first five months of 2011 to swell to their highest ever level but growth could slow down in the next months as oil prices are expected to stabilize at lower levels, a key bank in the Gulf Kingdom said on Monday.
The assets controlled by the Saudi Arabian Monetary Agency (WAMA), central bank, peaked at an all time high of SR1,802 billion ($480.5 billion) at the end of May because of strong crude prices and possibly higher return on SAMA’s investments, Banque Saudi Fransi (BSF) said in a study sent to Emirates 24/7.
Oil prices (WTI) averaged around $101.3 a barrel in May compared to $110.3 a barrel in April. SAMA’s deposits with foreign banks grew 23.9 per cent in May YoY, while investments in foreign securities rose 12 per cent and foreign currency assets (excluding gold reserves) soared by 25.5 per cent.
“The government has stated that it does not want to tap into foreign assets to support the new spending initiatives announced by the King in February and March, and these figures are consistent with this statement,” BSF said.
“Foreign asset growth, in the context of a growing economy, is healthy from a macroeconomic standpoint. The pace of foreign asset growth is likely to slow in the coming months as oil prices stabilise at lower levels and the bill to finance Saudi Arabia’s SR485 billion spending programme accumulates.”
The study on the country’s monetary developments showed money supply in its broadest form fell from SR1,175.3 billion in April to SR1,174.7 billion in May, although this nevertheless represents a healthy 16 per cent annual growth rate. Money supply has been growing for six months and given the robust pace of economic growth, it is reasonable to expect that the recent correction will be temporary, according to the study, which noted that a modest slowdown during a strong upward trend is not unusual.
“Despite the pace of growth in the money supply, price pressures remain benign and there is very little noted transmission into broader price pressures,” it said.
Its figures showed that in May, inflation was 4.6 per cent, down from 4.8 per cent in the previous month and the lowest inflation rate seen in 16 months.
BSF said the inflationary impact of the recently announced boost to government spending and the public and private sector bonuses have so far been muted. Headline inflation fell in May due to a decline in food price inflation from around six per cent in April to 5.7 per cent in May, and several base effects that surprisingly pushed prices beyond the expected threshold.
Rental inflation rose by nearly 0.6 per cent MoM but fell YoY from around 7.5 per cent in April to seven per cent in May, the report showed.
The report noted that the Saudi government, as per King Abdullah’s decrees in March, has recently taken steps to invite those Saudis who qualify to register for a SR500,000 loan from the Saudi Real Estate Development Fund (REDF) without the requirement of owning a piece of land.
On the first day of accepting applications, one million Saudis registered, most of them electronically, according to press reports last week.
“The state’s cash injection into REDF will enable a greater number of Saudis to buy homes. Nevertheless, the serious issue of price affordability will endure without broad reforms,” the report said.
“The official home ownership ratio of 62 per cent in Saudi Arabia could come under pressure unless more youth gain access to mortgage financing in the next decade. The median prices of villas and land are out of reach of most public and private sector employees… however mortgage terms should become more favourable and help to bridge the gap.”
The report said that as upward pressure on asking prices for apartments and villas gains rather than loses momentum, there is an urgent need for new units where they are required most - to provide middle- and lower-income citizens with single-family homes.
“The government is working on several fronts to try to alleviate supply constraints, dedicating SR55 billion ($14.7 billion) to programmes that help lower income citizens to obtain funding for home purchases. The king allocated a considerable SR250 billion to the General Housing Authority to finance the immediate construction of 500,000 new units.”
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