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23 February 2024

Low crude prices stifle growth of Saudi Arabia's foreign assets

The surge in oil prices from 2003 till the middle of 2008 brought massive surpluses to Saudi Arabia's fiscal system. (GETTY IMAGES)

By Nadim Kawach

A steep decline in oil prices sharply depressed growth of Saudi Arabia's foreign assets in November after recording their highest increase in the previous months of 2008 because of a surge in its petrodollar income.

The foreign assets of the Saudi Arabian Monetary Agency (Sama), the kingdom's central bank, gained approximately SR3 billion (Dh2.93bn) in November compared to an average monthly increase of nearly SR45bn in the first 10 months of 2008.

Sama's figures showed its foreign assets peaked at nearly SR1.73 trillion at the end of November compared to about SR1.727trn at the end of October and SR1.679trn at the end of September. The assets stood at SR1.263trn at the beginning of 2008 and only SR197bn at the beginning of 2002.

Sama gave no reason for the slower growth in November but oil prices lost nearly $100 (Dh367) in the last quarter of 2008 after peaking at $147 in late July. In November, prices averaged about $49, nearly a third of their July level.

Strong crude prices through most of 2008 allowed the kingdom, the world's top oil exporter, to record its highest ever budget surplus last year of nearly SR590bn.

This has enabled it to sharply boost its foreign assets and slash its public debt to less than 15 per cent of the gross domestic product after surpassing the GDP in late 1999.

Sama's figures showed there was an increase in its deposits with banks abroad but a slight decline in investment in foreign securities in November. Deposits swelled from about SR373.2bn to SR384.3bn while securities slipped from SR1.172trn to nearly SR1.169trn.

There was also a decline in other assets from about SR33bn to SR29.8bn.

Sama's assets recorded their highest growth in 2008, leaping by more than SR500bn since January 1 because of the surge in oil prices and the kingdom's output, which averaged about 9.2 million barrels per day (bpd).

The assets dipped to one of their lowest levels of below SR100bn in 1998 before they began their rapid climb to reach SR197bn in 2002. By the end of 2007, the assets have rocketed to SR1.196trn.

Bankers said the kingdom's strong financial position and the sharp drop in its debt would enable it to face the fallout from the current global financial crisis. In a study last month, the Saudi American Bank (Samba) expected Sama's assets to jump to $670bn by the end of 2009 and $878bn in 2010.

"The kingdom's main financial balances retain a solid outlook. On average, the current account should post surpluses of 34 per cent of gross domestic product (GDP) in 2008-2010, while the fiscal surplus should remain around 20 per cent of GDP, albeit moderating," Samba said in its latest bulletin.

"This will allow further substantial additions to foreign assets, which are already in excess of $400bn, or 80 per cent of GDP. We expect the official foreign assets to climb to nearly $670bn (125 per cent of GDP) by end-2009 and to $878bn or 143 per cent of GDP by end-2010."

In contrast to the 1990s, when Saudi Arabia reeled under heavy financial deficits, the surge in oil prices since 2003 has brought massive surpluses to the kingdom's fiscal system. The budget surplus climbed to SR280bn in 2006 from SR217bn in 2005 before falling back to about SR176bn in 2007. The surplus hit an all time high of SR590bn in 2008, tempting Riyadh to approve its highest ever budget for 2009 with a deficit of about SR65bn.

But experts believe the deficit will turn into an actual surplus on the grounds oil prices are expected to be higher than the $36 price assumed by Saudi Arabia.