Saudi reserves plunge as kingdom struggles with Covid-19 pandemic & oil-market rout

Saudi Arabia’s foreign reserves fell sharply in April, after it transferred 150 billion riyals ($40 billion) to the sovereign-wealth fund to provide investment opportunities amid the pandemic-triggered financial fallout.

According to the country’s central bank, known as the Saudi Arabian Monetary Authority, total foreign reserve assets shrank by $24.7 billion in April to about $448.6 billion. The decline followed a $27 billion plunge in March, which has become the largest single-month drop for two decades.

Saudi Finance Minister Mohammed al-Jadaan has explained that the $40 billion transfer was a one-off transaction to seize investment opportunity. “This procedure was taken after comprehensive study and taking into consideration the sufficient level for foreign-currency reserves,” the minister said.

In the first quarter of 2020, the Public Investment Fund (Saudi Arabia’s sovereign wealth fund) has invested billions of dollars in companies such as BP, Boeing, Citigroup, Facebook, and cruise operator Carnival.

The kingdom has also turned to austerity measures and tripled value-added tax in an attempt to cope with the impact of the Covid-19 pandemic and the oil-price rout. 

According to the International Monetary Fund, Saudi Arabia’s fiscal deficit this year is set to widen to nearly 13 percent of gross domestic product. The IMF projects gross official reserves will drop to around $456 billion in 2020, with the downward trend set to continue into 2021. At the end of April, the central bank’s net foreign assets stood at almost 1.7 trillion riyals ($453 billion).

“Saudi Arabia’s reserves’ position remains comfortable despite the fall,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank, as quoted by Bloomberg. “The still-low debt level provides an additional buffer. This is likely to rise sharply this year and next. Nevertheless, the medium-term oil price and ongoing fiscal adjustment remains critical.”

Saudi Crown Prince Mohammed bin Salman has long been attempting to reshape the kingdom’s oil-dependent economy. This year’s oil-market turmoil has cut deeply into the government revenue for the world’s largest oil exporter.

In 2016, bin Salman unveiled the so-called Saudi Vision 2030 initiative, which includes policy and regulatory changes to be realized over the next 15 years to help the country’s economy develop beyond crude.

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