(AFP)   

 
 
Saudi Arabia’s King Abdullah bin Abdul Aziz is expected to give the green light for a mini sovereign fund that will manage the Kingdom’s internal wealth before it is expanded into a full-fledged body overseeing its assets abroad.

Saudi officials said a draft plan to create a sovereign wealth fund (SWF), which was prompted by massive surplus petrodollars, has been presented to the Supreme Economic Council, headed by the Saudi monarch.

 

Hamad Al Sayyari, Governor of the central bank Saudi Arabian Monetary Agency (SAMA), dubbed the plan an investment company but said it can be classified as a SWF that will first manage Saudi Arabia’s domestic assets.

 

“The establishment of this new company has reached an advanced phase and is now being discussed by the Supreme Economic Council,” Sayyari was quoted as saying yesterday by the Saudi Arabic language daily Aleqtisadiah.

 

“This company can be classified as a sovereign fund but its initial capital will be limited compared to other major funds as it is set at SR22 billion (Dh21 billion). It will focus first on local investments and available business opportunities in Saudi Arabia but I can not rule out investment opportunities abroad at a later stage. This of course can be decided by the Finance Minister, who heads the fund.”

 

Unlike the UAE, Saudi Arabia does not have a SWF to manage its wealth abroad as its foreign assets are controlled by SAMA. Plans to create a Saudi SWF, revealed early this year, followed a sharp increase in Saudi Arabia’s oil export earnings because of high crude prices over the past five years.

 

The price surge has wiped out its budget deficit, created massive current account surpluses and slashed its debt to just below 20 per cent of its gross domestic product from more than 100 per cent in 1999.

 

Saudi Arabia, the world’s top oil exporter, enjoyed huge fiscal surpluses in the first oil boom 30 years ago but did not consider creation of a SWF as it has invested the bulk of the surplus funds in creating a modern infrastructure.

 

In contrast, the UAE decided to set up a sovereign fund just a few years after it began commercial oil exports in mid 1960s. The Abu Dhabi Investment Authority, ordered by late president Sheikh Zayed bin Sultan Al Nahyan in 1971, has mushroomed into what is now believed to be the world’s largest SWF as it controls in excess of $900 billion, according to Western bank estates. Economists said Riyadh’s delayed plans for the SWF are justified by the fact that oil exports still account for more than two thirds of Saudi Arabia’s total income and the Kingdom is suffering from high unemployment rates.

 

“It will take time but it is a sound decision at this stage,” said an economist at a major Saudi bank. “There has always been a need for an institution that will save surplus funds for future generations and I think this is a golden opportunity now that the country is enjoying high financial surpluses.”

 

Strong crude prices have allied with high oil output to sharply boost the assets of SAMA, which is in charge of Saudi Arabia’s foreign assets. The country’s official foreign currency reserves also climbed to their highest level in 2007.

 

From only $5 billion (Dh18.5 billion) at the end of 1998, the reserves leaped to $17.5 billion (Dh64.5 billion) at the end of 2001 and $27.5 billion (Dh 101 billion) at the end of 2006.

 

They swelled to a record $31.5 billion (Dh115.5 billion) at the end of September and are projected to continue rising in 2008 as crude prices are forecast to remain strong.