Saudi Foreign Assets Fall To Lowest Since 2012

Saudi Foreign Assets Fall To Lowest Since 2012

$OIL

Net foreign assets at Saudi Arabia’s central bank fell 1.2% from the prior month in September

Net foreign assets at Saudi Arabia’s central bank fell 1.2% from the previous month in September to SAR 2.426-T ($647-B), their lowest mark since November 2012, official data showed Thursday.

The central bank, which serves as Saudi Arabia’s sovereign wealth fund, has been liquidating assets to cover a huge state budget deficit caused by low oil prices, which have cut the earnings of the world’s top Crude Oil exporter.

The assets shrank 12.2% from a year earlier. They reached a record high of $737-B in August last year before starting to decline.

The pace of decline has slowed since early this year, however, when M-M falls sometimes exceeded 2%. A reason for the slower fall is that the government resumed issuing domestic bonds in July for the first time since Y 2007, reducing the need to sell assets abroad.

The decline may slow further in coming months as the government takes austerity steps to restrain spending and raise more revenue from non-Oil sources.

The International Monetary Fund (IMF) warned last week that if fiscal policy stays unchanged, the Kingdom will exhaust its financial reserves in under 5 years. So officials are considering cuts to energy subsidies, curbs to capital spending and even a tax on undeveloped urban land.

The central bank’s foreign assets, some of which are managed by global fund firms, are held mainly in the form of securities such as US Treasury bonds and deposits with banks abroad.

Equities are believed to account for just a small fraction of securities holdings, perhaps 20%. The bulk of assets are believed to be denominated in USD’s.

The September data showed heavy selling of securities last month; foreign securities holdings dropped 4.9% from the prior month to $447-B.

While some of that money was used to pay the government’s bills, much of it went to building up the central bank’s deposits with banks abroad, which increased 13.4% to $137-B.

Stay tuned…

HeffX-LTN

Paul Ebeling

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