Saudi Arabia’s foreign exchange reserves fell in April to their lowest level in more than 13 years, in an apparent sign that the kingdom has yet to use up last year’s $326 billion in oil to complete the central bank holdings.
Net foreign assets fell to 1.538 trillion rials ($410 billion) last month, according to the central bank’s monthly report on Sunday, declining for the fifth month in the longest falling streak since early 2019. Bookings are down more than 44% from their peak in August 2014.
The withdrawal, which reached nearly $42 billion since November, follows a change in the way the world’s biggest crude exporter manages its oil wealth.
While higher oil prices and production used to translate quickly into a surge in foreign exchange reserves, officials announced a year ago that the kingdom planned to keep the money and only later decide how to distribute it. The budget had a surplus of 103.9 billion rials last year, according to the Ministry of Finance.
The government has set the lowest and highest bands for the level of reserves it wants to maintain as a share of economic output, according to Finance Minister Mohammed Al-Jadaan, with the aim of protecting public finances from potential shocks .
The stock is vital to maintain confidence in Saudi Arabia’s 3.75 to the dollar peg. The riyal’s 12-month forward rate was little changed at 3.7505 on Friday, suggesting traders view the peg as solid.
Although Saudi Arabia ran its first budget surplus in nearly a decade last year, it remains unclear how it is allocating the money. Last December, Al-Jadaan said most of it would likely go to the central bank.
Other potential recipients of transfers include the National Development Fund, which has been tasked with investing in the development of the kingdom’s infrastructure, and the Public Investment Fund, the sovereign wealth fund.
Looking ahead, the fiscal outlook becomes less favorable for Saudi Arabia.
The International Monetary Fund forecasts that Saudi Arabia will run a budget deficit of 1.1% of gross domestic product this year, a view that is at odds with the government’s expectation of a second consecutive surplus last estimated in 16,000 million rials.
The Washington-based lender raised its estimate of the oil price Saudi Arabia needs to balance its budget this year to more than $80 a barrel, above Brent’s current level of about $77. The kingdom does not disclose an oil price assumption in its budget.
Saudi Arabia returned to the debt market earlier this month by selling $6 billion of Islamic bonds. The kingdom already recorded a deficit of 2.91 billion rials in the first quarter of the year.
–With the help of Paul Wallace.
