Oil prices to boost Saudi assets by 14 per cent in 2010

Strong oil prices will likely bolster Saudi Arabia's foreign assets by nearly 14 per cent in 2010 after they dipped by about 12 per cent in 2009 because of higher budgetary spending, a ey bank in the kingdom said yesterday.

Although the world's dominant oil exporter is again expected to overshoot forecast expenditure in 2010, the projected rise in crude prices and possibly hither output by the kingdom will more than offset the increase in spending and allow Riyadh to replenish its overseas assets, Banque Saudi Fransi (BSF) said.

Citing figures by the Saudi Arabian Monetary Agency (Sama), the country's central bank which controls those assets, BSF estimated the assets at SR1.46 trillion (Dh1.44trn) at the end of November, bigger than the Saudi GDP.

"The size of those assets receded in 2009 because of the dual impact of lower oil export earnings and higher public spending. We do not expect any change in Sama's conservative strategy of managing those assets," said BSF.

"As for this year, our expectations are that growth in those assets will outpace growth in the kingdom's nominal GDP. We believe the government will continue to support the expansionary public spending programme but since oil revenues are projected to increase, we expect those assets to rise by 14 per cent to reach nearly SR1.67trn at the end of 2010."

BSF said most of the decline in the Saudi foreign assets in 2009 was a result of a sharp increase in actual expenditure as the Kingdom did not use those assets to reduce its public debt, which is owed to local banks and other institutions.

"This is not a wise policy by the kingdom… withdrawing funds from the local market and investing them abroad will negatively affect net foreign assets."

Sama's foreign assets climbed to their highest level at the end of 2008 before they started to decline through 2009 as the country pushed ahead with a massive investment programme to mitigate the impact of the global crisis.

From around SR1,709bn at the end of 2008, the assets tumbled by about SR206bn to SR1,503bn at the end of November, according to Sama.

Riyadh approved a record high budget of SR475bn (Dh470bn) for 2009, creating a deficit of SR65bn. The actual shortfall was cut to SR45bn despite overspending by about SR75bn.

Saudi Arabia has just announced another record budget for 2010 as part of an ongoing stimulus programme to maintain growth in its economy, the largest in the Arab region.

Economists said Saudi Arabia resorted to its assets to avoid putting further pressure on its fragile liquidity situation resulting from the global credit tightness.

Heavy borrowing by the country in the previous years boosted its public debt to a record SR660bn in 1999 before the surge in oil prices allowed it to gradually slash the debt in the following years.

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