Saudi foreign assets peak in 2011

Strong oil prices allied with higher crude output to push Saudi Arabia’s foreign assets to a record high of more than SR1.8 trillion at the end of May and the level is projected to reach a new peak of SR1.9 trillion at the end of 2011, according to the Gulf Kingdom’s largest bank.

National Commercial Bank (NCB) said Saudi Arabia had largely benefited from higher crude prices and a sharp increase in its oil production as a result of the current conflict in OPEC-member Libya, adding that Riyadh boosted supply to one of its highest levels of 9.4 million bpd to offset Libya’s supply disruption.

As crude prices hovered at $100 a barrel, Saudi Arabia is experiencing robust revenues and, accordingly, accelerating the Kingdom’s current and fiscal accounts surpluses, NCB said in a study sent to Emirates 24/7.

It noted that in recent years, the Kingdom’s policy of stockpiling foreign assets has been noticeable, adding that this policy has not changed.

As a result, Net Foreign Assets (NFA) reached a new record by surpassing the SAR1.8 trillion mark during May. Over the three months period of March to May, NFA grew by 10.9%, 13.2%, and 15.6%, respectively.

Foreign currencies and gold grew by a remarkable 25.1%, while deposits with banks abroad expanded by 23.9% year-on-year during May.

The main composition of NFA constituting over 70%, investments in foreign securities, gained 12% and has been growing in double digits through the preceding five months, NCB said, citing data by the Saudi Arabian Monetary Agency (SAMA), the country’s central bank which controls those assets.

“The government stated that it will not tap into foreign assets to fund the royal decrees announced earlier this year. We expect NFA to reach close to SR1.9 trn by the end of 2011 as Libya’s supply shortage will take time to recover, which will keep oil prices elevated for an extended period of time.”

From SR1,806.7 billion ($482 billion) at the end of April, SAMA’s foreign assets soared to a record high of SR1,856.2 billion ($495 billion) at the end of 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.

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.

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