Sama vows to pursue conservative fiscal policy

Saudi Arabia's central bank vowed yesterday to pursue a conservative monetary and fiscal policy which it said had somewhat saved its economy from the repercussions of the global financial distress.

The pledge was made by Abdul Rahman Al Humaidi, who was on Sunday named Deputy Governor of the Saudi Arabian Monetary Authority (Sama), a post that has remained vacant since late 2008, when former Governor Hamad Saudi Al Sayyari was replaced by his deputy Mohammed Al Jasser.

Formerly Sama's Undersecretary, Al Humaidi said he would work with Jasser, whom he described as a long-time acquaintance, to ensure the domestic economy would not be affected by further crises in the future. "Al Humaidi affirmed that the kingdom would continue its conservative monetary policy in the coming stage," reported the Saudi Arabic language daily. "He considered this policy as a major factor in allowing the kingdom to avoid the severe effects of the global crisis as was the case with other economies."

Al Humaidi did not elaborate on such a policy but Sama has always adopted a conservative attitude towards the local banking sector and its investments abroad, which experts said allowed it to avert large losses after the crisis.

Official figures showed Sama's foreign assets had gained nearly SR467 billion (Dh462bn) in the first 11 months of 2008 before they recorded their first decline of SR20bn in December.

At the end of January, the assets lost nearly SR28bn and continued their decline to dip to about SR1.49 trillion in July.

But experts said the fall was mainly a result of government withdrawals from the assets to fund the country's record budget for 2009. Estimates by the Saudi American Bank (Samba) showed there was a loss of about $46bn (Dh172bn) in the assets of Sama and other independent government organisations through 2008.

But it noted that most of the decline was in assets invested by those organisations while it considered the loss as minimal compared with those suffered by other Gulf sovereign wealth funds (SWFs).

It put the combined loss in GCC foreign assets at about $350bn through 2008 as a result of the global fiscal turmoil.

Sama's current financial position is in sharp contrast with that during 1990s, when the kingdom reeled under low oil prices and massive fiscal deficits.

Its assets dipped below SR100bn at the end of 1998 before they started their rapid rise in the following years because of a surge in oil prices, which turned the country's budget deficits into mammoth surpluses.

By the end of 2003, the assets have swelled to nearly SR272bn. They soared to SR374bn at the end of 2004 and continued their climb to reach SR884bn at the end of 2006. They smashed through the SR1trn mark for the first time at the end of 2007 and recorded their largest increase of about SR513bn in 2008 to peak at SR1.7trn.

"Sama has always followed a conservative investment policy as most of its assets are concentrated in safe US treasury bills away from volatile stock markets and restructured products.

This has enabled Sama to preserve the value of its net foreign assets and kept it in a much better position than the other Gulf investment organizations, which have accumulated nearly 40 per cent of their assets in financial markets," said Saeed Al Shaikh, Chief Economist at the Saudi National Commercial Bank, in a recent lecture in Riyadh.

"As a result of these massive financial resources, I believe Saudi Arabia can handle the crisis even if it continues into 2011. These resources could also partly be used to cover the kingdom's public debt of about 13.5 per cent of the GDP. If all the assets are used, then the debt will be eliminated and there will be a surplus of over 40 per cent of the GDP," said Al Shaikh.

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