High oil prices boost Saudi foreign assets

Strong oil prices boosted Saudi Arabia's foreign assets by more than SAR200 billion in the first half of this year as the world's oil superpower heads for its best fiscal year.

Official figures showed the assets controlled by the Saudi Arabian Monetary Authority (Sama), the Gulf Kingdom's Central Bank, swelled to a record SAR1.46 trillion (Dh1.45 trillion) at the end of June, compared with nearly SAR1.26 trillion (Dh1.25 trillion) at the end of 2007, an increase of around SAR205 billion (Dh202.9 billion).

The assets at the end of June were more than SAR500 billion higher than their level at the end of June 2007 and nearly seven times the assets six years ago.

The figures published in Sama's monthly bulletin showed the bulk of the assets were investments in foreign securities, which hit a record SAR1.11 trillion (Dh1.102 trillion) at the end of June compared with SAR806.7 billion (Dh798.7 billion) at the end of 2007, an increase of nearly SAR208 billion.

The increase was at the expense of Sama's deposits with banks abroad, which dived to around SAR200.8 billion (Dh198.8 billion) at the end of last June from SAR298.6 billion (Dh295.6 billion) at the end of 2007, the report showed.

Saudi bankers said Sama had cut its deposits because of lower interest rates and higher return from securities, mainly in the US.

Before a spate of interest rate cuts by the US Fed to stimulate the country's slackening economy in late 2007 and through the first half of 2008, Sama's deposits with banks abroad had doubled from SAR123.3 billion (Dh122 billion) at the end of 2006 to SAR246.7 billion (Dh244 billion) at the end of 2007. They were then slashed to SAR66 billion in June last year before they were replenished again in the following months.

"This is a normal practice by Sama and other government institutions in the Gulf as they always seek high return and try to diversify their sources of investments and income," said Malik Yunus, an economist at the Saudi National Commercial Bank.

Like other Gulf oil producers, Saudi Arabia is basking in a financial euphoria similar to the first oil boom of 1970s and early 1980s, when its fiscal balance was surfeit with heavy surpluses and its economy was galloping by double-digit growth rates.

Its official foreign exchange reserves with the International Monetary Fund also climbed to one of their highest levels of around $34 billion at the end of June while its current account surplus is projected to peak at nearly $105 billion this year.

In 2007, Saudi Arabia's income from nearly nine million barrels per day of oil exports soared to an all time high of $194 billion and the revenues are forecast to exceed $350 billion this year. First half income was estimated at $192 billion for an average price of Saudi crude of nearly $105 a barrel compared with around $70 last year.

Preliminary forecasts by the Riyadh-based Jadwa Investment company showed the Kingdom's budget surplus could swell to SAR277 billion (Dh274 billion) this year, far higher than the SAR179 billion surplus recorded last year.

"These forecasts were produced more than two months ago and they are still preliminary," a Jadwa source said. "There will be revised figures later this year and am sure the budget surplus will be far bigger than we had expected."

Follow Emirates 24|7 on Google News.