Low oil prices depress Saudi assets at 2008 end

A steep decline in oil prices sharply depressed Saudi Arabia's official foreign assets at the end of 2008 for the first time in more than two years although the Kingdom ended the year with its largest budget surplus.

From SAR1.73 trillion (Dh1.69trn) at the end of November, the foreign assets of the Saudi Arabian Monetary Agency shrank to around SAR1.70trn at the end of 2008, Sama figures showed yesterday.

A breakdown for the previous months showed the assets recorded their first major decline in more than two years after a steady and rapid increase in the past months because of a surge in oil prices.

Sama gave no reason for the decline in December but crude prices lost nearly $100 in the last quarter of 2008 after peaking at $147 in late July. In December, prices averaged only around $38, below 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 SAR590 billion. 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 a decline in both deposits with banks abroad and investment in foreign securities. Deposits slumped from SAR384.3bn to SAR379.4bn and investments from nearly SAR1.169trn (Dh1.157 trillion) to SR1.154trn.

Banknotes grew from around SAR25.7bn to SAR27bn while foreign currencies and gold remained at SAR121bn.

Sama's assets recorded their highest growth in 2008, leaping by more than SAR500bn since January 1 because of the surge in oil prices and the Kingdom's output, which averaged around 9.2 million barrels per day.

The assets dipped to one of their lowest levels of below SAR100bn in 1998 before they began their rapid climb to reach SAR197bn in 2002. By the end of 2007, the assets have rocketed to SAR1.196trn.

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."

But economists believe that level is unattainable if oil prices do not rebound sharply in the next few years as the Kingdom could revert to painful fiscal deficits if crude prices remain at their present levels.

"You can talk about that level if oil prices remain above $100 but at current levels of prices and production, I don't think it is achievable," Saeed Al Shaikh, Chief Economist at the Saudi National Commercial Bank, said. In contrast with 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.

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