Saudi Reserves Drop for Fifth Straight Month to $664.4 Billion

Saudi Arabia’s net foreign assets fell 1.2 percent in June as the government of the biggest Arab economy continued to spend down reserves for the fifth month in a row.

Net foreign assets fell to $664.4 billion, bringing their decline since an all-time high in August last year to $72.6 billion, the Riyadh-based Saudi Arabian Monetary Agency said in its monthly report.

Saudi Arabia’s reserves have shrunk for nine out of the last 10 months as the oil-price rout, war in Yemen and a boost in domestic spending pressure state finances. The International Monetary Fund forecast that the kingdom will post a budget deficit this year equal to 20 percent of its GDP.

The government is “hemorrhaging” money, said Farouk Soussa, Citigroup’s chief Middle East economist.

“We should expect some sort of fiscal adjustment at some point, and that’s going to be a tricky thing to do for the government given that it has such high expenditure pressure, especially on the security side,” Soussa said by phone from London before the lastest data was released.

Economists at Jeddah-based National Commercial Bank forecast in a July research note that Saudi Arabia’s net foreign assets will fall to $655.5 billion this year and drop $22.1 billion more in 2016.

The government plans to sell as much as 20 billion riyals ($5.3 billion) of debt on Monday as part of a wider plan to raise 90 to 100 billion riyals before year-end to help cover the deficit, two people familiar with the matter said.

If that happens, government debt would increase to about 7 percent of economic output from less than two percent last year, the lowest ratio in the world, Jean-Michel Saliba, a London-based economist at Bank of America Merrill Lynch, wrote in a research note.