JEDDAH — Saudi Arabia's net foreign assets dropped $45.9 billion at the end of April this year, the latest monthly statistical data from Saudi Arabia Monetary Agency (SAMA) showed. Analysts say the slump in reserves could be attributed to lower growth in oil revenues and increased government spending. “The cumulative year-to-date drop in SAMA net foreign assets has reached a large $45.9 billion. This move is largely explained by the liability side of the SAMA balance sheet, in our view. In effect, deposits of the central government at SAMA dropped by a large $14.3 billion to $313 billion in April, after a whopping $30.6 billion drop in February due to the Royal handouts,” said Jean-Michel Saliba, MENA economist at Bank of America Merrill Lynch. The cumulative year to- date drop in deposits of the central government at SAMA has reached a large $63.8 billion. Unlike previous months, this month's drawdown is nearly fully explained by a large $19 billion drawdown in central government deposits allocated to projects, the largest on record since data was made available. This was somewhat offset by a concurrent $7.5 billion increase in government current deposits. Liquidity levels continue to hold up with money supply growing at 9.4 per cent in April compared to 10.2 percent in March. Bank deposits grew by 0.4 percent month on month and 8.9 per cent year on year in April. Demand deposits grew strongly by 2.2 percent month on month in April. This has been offsetting contractions in time and saving deposits, and was helped by the rebound in FX deposits of government entities which grew by 8.6 percent month on month in April. Loans to private sector decelerated to 9.4 percent year on year in April from 10.3 percent in March. While the FX deposits from the government and government related entities continue to support the overall liquidity levels, as firmer allocation to strategic capex pipeline is maintained. But future diversion of funds for other needs including current spending or military spending could apply pressure on liquidity in the financial system with April marking the full-month since the start of the Yemen campaign. Despite the visible drop in government deposits with SAMA, analysts do not anticipate any sharp pullback in government spending. “Economic activity is likely to remain cushioned in the near-term but at the cost of wide and unsustainable fiscal deficits, in our view. The absence of material fiscal adjustment is likely to imply a need for a sharper adjustment down the line if oil prices remain low for long, in our view,” said Saliba. The budget deficit is estimated at about 17 percent of GDP if the oil prices are to average around $55 per barrels while the GDP is expected to grow at 3 per cent this year. The rapid drawdown in reserve assets suggests that domestic borrowing appears increasingly on the cards. — SG
