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Saudi foreign assets dip by SR28bn in January

By Nadim Kawach

Saudi Arabia's foreign assets dipped by more than SR28 billion (Dh27.7bn) in January to maintain their fall for the second successive month after several years of a steady growth, official figures showed yesterday.

Although the world's oil superpower recorded its largest ever budget surplus in 2008, the foreign assets of its central bank plunged back to their September level apparently because the government focuses on slashing debt and maintaining high expenditure in 2009 to offset an economic downturn.

From around SR1,709.9bn at the end of 2008, the assets of the Saudi Arabian Monetary Agency (Sama) shrank to nearly SR1,681.3bn at the end of January, a drop of SR28.6bn.

A breakdown for the previous months showed the assets recorded their second 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 but crude prices lost nearly $100 in the last quarter of 2008 after peaking at $147 in late July. In January, prices averaged only around $40, below a third of their July level.

Strong crude prices through most of 2008 allowed the Gulf Kingdom to record its highest ever budget surplus last year of nearly SR590bn. This enabled it to 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 most of the decline was in deposits with banks abroad that slumped from SR379.4bn at the end of December to SR353.2bn at the end of January. Investment in foreign securities remained unchanged at around SR1,154bn.

Saudi economists said they believed the decline was due to a sharp fall in crude prices and the Kingdom's oil production, a government decision to keep up with the projected record budget for 2009 and the policy of slashing public debt after swelling above the gross domestic product nine years ago.

Sama's report showed the debt continued to decline despite lower oil prices, with bank claims on the public sector diving to its lowest level since February 2008.

From around SR241.9bn at the end of 2008, the claims plunged to SR209.5bn at the end of January. Most of the drop was in treasury bills, which slumped to around SR93.8bn from SR119.2bn in the same period.

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 around 9.2 million barrels per day.

The assets dipped to one of their lowest levels of below SR100bn in 1998 before beginning a rapid climb to reach SR197bn in 2002. By the end of 2007, the assets had rocketed to SR1.196 trillion.

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 (Dh2.45trn) 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 as the Kingdom could revert to fiscal deficits if prices remain at their present levels.