Saudi foreign assets fall to their lowest since 2012

Net foreign assets at Saudi Arabia’s central bank fell 1.2 per cent from the previous month in September to SAR 2.426 trillion ($647bn), their lowest level since November 2012, official data showed on Thursday.

The central bank, which serves as Saudi Arabia’s sovereign wealth fund, has been liquidating assets to cover a huge state budget deficit caused by low oil prices, which have slashed the earnings of the world’s top oil exporter.

The assets shrank 12.2 per cent from a year earlier. They reached a record high of $737bn in August last year before starting to dwindle.

The pace of decline has slowed since early this year, however, when month-on-month falls sometimes exceeded 2 per cent. One reason for the slower fall is that the government resumed issuing domestic bonds in July for the first time since 2007, reducing the need to sell assets abroad.

The drop may slow further in coming months as the government takes austerity steps to restrain spending and raise more revenue from non-oil sources.

The International Monetary Fund warned last week that if fiscal policy stays unchanged, the kingdom will exhaust its financial reserves in under five years. So officials are considering cuts to energy subsidies, curbs to capital spending and even a tax on undeveloped urban land.

The central bank’s foreign assets, some of which are managed by global fund firms, are held mainly in the form of securities such as U.S. Treasury bonds and deposits with banks abroad. Equities are believed to account for only a small fraction of securities holdings, perhaps 20 per cent. The vast bulk of assets are believed to be denominated in U.S. dollars.

The September data showed heavy selling of securities last month; foreign securities holdings dropped 4.9 per cent from the previous month to $447bn.

While some of that money was used to pay the government’s bills, much of it went to building up the central bank’s deposits with banks abroad, which increased 13.4 per cent to $137bn.