Saudi December Net Foreign Assets Drop More Than $19 Billion

  • Net foreign assets dropped more than $100 billion in 2015
  • Situation `likely to get more difficult,' economist says

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The Saudi central bank’s net foreign assets tumbled more than $19 billion in December as the kingdom draws on reserves amid the plunge in oil prices.

Reserves declined about 3 percent to more than $608 billion, bringing the drop in 2015 to $115 billion, according to central bank data released on Thursday.

While Saudi Arabia’s reserves remain among the highest in the world, the drop
underscores the kingdom’s struggle to cope with falling oil prices. Authorities are racing to find alternatives to revenue from crude exports to finance a budget deficit that stood at about 15 percent of economic output last year.

“The situation is likely to be even more difficult this year,” said Raza Agha, chief Middle East and Africa economist at VTB Capital in London. “Why? Oil averaged $53 a barrel or so last year; it has averaged $32 a barrel this year. So the pinch on exports will be even more.”

Brent crude prices have declined about 30 percent over the past year to $34 a barrel. Saudi Arabia’s benchmark Tadawul All Share Index rose 3.2 percent at the close in Riyadh, trimming its losses over the past 12 months to 34 percent.

For the drop in foreign assets to slow, “oil will need to average higher than $53 a barrel this year, unless spending pressures moderate more significantly than envisaged in the 2016 budget,” Agha said.

Asset Sales

The slump in oil prices has already pushed Saudi authorities to cut spending, issue more debt and draw down the kingdom’s foreign-currency reserves. Officials are also weighing plans to sell stakes in state-owned entities from hospitals to airports and even Saudi Arabian Oil Co., the kingdom’s biggest oil company, known as Aramco.

December’s drop “adds to the evidence that Saudi is willing to draw down its reserves in order to support the economy and sustain spending,” said Jason Tuvey, Middle East economist at Capital Economics in London.

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