Saudi net reserves fall to $410 billion, lowest since 2010

(Bloomberg) – Saudi Arabia’s foreign exchange reserves fell to their lowest in more than 13 years in April, an apparent sign that the kingdom has yet to use up last year’s $326 billion in oil windfalls. to supplement central bank holdings.

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Net foreign assets fell to 1,538 billion riyals ($410 billion) last month, according to the central bank’s monthly report released on Sunday, down for a fifth month in the longest streak of decline since the start of 2019. Reserves have fallen by more than 44% since their peak in August 2014.

The drawdown, which has reached nearly $42 billion since November, follows a shift in the way the world’s biggest crude exporter manages its oil wealth.

As rising oil prices and production quickly translated into rising foreign exchange reserves, officials announced a year ago that the kingdom planned to hold on to the cash and not decide until later how the distribute. The budget recorded a surplus of 103.9 billion riyals last year, according to the finance ministry.

The government has set lower and upper bands for the level of reserves it wants to maintain as a share of economic output, according to Finance Minister Mohammed Al-Jadaan, in a bid to protect public finances from possible shocks.

The stock is key to maintaining confidence in Saudi Arabia’s $3.75 per dollar peg. The 12-month riyal forward rate was little changed at 3.7505 on Friday, suggesting traders view the peg as solid.

Although Saudi Arabia posted its first budget surplus in nearly a decade last year, it remains unclear how it allocates the money. Last December, Al-Jadaan said most of those funds would likely go to the central bank.

Other potential recipients of the transfers include the National Development Fund, which has been tasked with investing in the kingdom’s infrastructure development, and the Public Investment Fund – the sovereign wealth fund.

Going forward, the fiscal outlook becomes less favorable for Saudi Arabia.

The International Monetary Fund predicts Saudi Arabia will run a budget deficit of 1.1% of gross domestic product this year, which is at odds with government expectations of a second consecutive surplus, last estimated at $16 billion. of riyals.

Read more: Saudi Arabia needs more expensive oil to balance its budget, IMF says

The Washington-based lender raised its estimate of the price of oil Saudi Arabia needs to balance its budget this year to more than $80 a barrel, above Brent’s current level of around $77. The kingdom does not disclose an oil price assumption in its budget.

Read more: Saudi Arabia’s budget slides into deficit as spending accelerates

Saudi Arabia returned to the debt market earlier this month by selling $6 billion of Islamic bonds. The kingdom has already recorded a deficit of 2.91 billion riyals in the first quarter of the year.

–With the help of Paul Wallace.

(Updates with graphics)

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