U.A.E. Central Bank Foreign Assets Decline $12 Billionby
Country holds about 6 percent of global crude reserves
U.A.E. faces bets against its currency amid oil's drop
The United Arab Emirates central bank’s foreign assets fell by $12 billion in January from the previous month as the Arab world’s second-biggest economy grapples with falling oil prices and bets against its currency.
Foreign assets declined to 296.9 billion dirhams ($81 billion) from 341.1 billion dirhams, according to data posted on the central bank’s website. Cash, bank balances and deposits with banks abroad dropped almost 30 percent to 122.2 billion dirhams, while investments in held-to-maturity foreign securities and other foreign assets increased, according to the data.
Oil producers in the six-nation Gulf Cooperation Council, which includes Qatar, Kuwait and the biggest Arab economy of Saudi Arabia, are seeing their public finances deteriorate as crude prices hover near 12-year lows. Net foreign assets of the Saudi Arabian Monetary Agency, the kingdom’s central bank, have fallen in the 11 months to December as the country sought to bridge its budget deficit.
"As public finances face a second year of challenging oil prices, the U.A.E. will likely issue debt and tap into its savings in order to support government spending and economic activity," Carla Slim, the Middle East and North Africa economist at Standard Chartered in Dubai, said in an e-mail.
The drop in oil prices has also boosted speculation that countries in the region will be pushed to adjust their currencies’ fixed exchange rates to the dollar. Twelve-month forward contracts for the U.A.E. dirham, used partly to bet on a devaluation of the currency, climbed to 325 points last month, their highest since 2009.
The U.A.E. holds about 6 percent of global crude reserves. Most of the country’s cash reserves are held by its sovereign wealth fund, the Abu Dhabi Investment Authority, whose assets Fitch estimated would decline to $475 billion at the end of this year.