Saudi foreign reserves fall at fastest for two decades

Riyadh/Dubai (Reuters): Saudi Arabia’s central bank foreign reserves fell in March at their fastest rate in at least 20 years and to their lowest since 2011, while the kingdom slipped into a $9 billion budget deficit

Saudi Minister of Finance Mohammed al-Jadaan

in the first quarter as oil revenues collapsed.

The world’s largest oil exporter is suffering from historic price lows, while at the same time measures to fight the new coronavirus are likely to curb the pace and scale of economic reforms launched by Crown Price Mohammed bin Salman.

The Saudi Arabian Monetary Authority said late on Tuesday its net foreign assets, which include securities such as US Treasuries and foreign deposits, fell in March to $464 billion, their lowest in 19 years.

The nearly $27 billion decline - the biggest monthly drop in at least two decades - signals the kingdom’s urgent need to tap into reserves to offset economic damage from oil prices and a severe coronavirus-driven slowdown of non-oil sectors.

“We believe that the magnitude of the drop ... reflected both higher government funding to cover the budget deficit and the support packages announced in March to help counterbalance the impact of COVID-19,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank (ADCB).

Finance Minister Mohammed al-Jadaan said last week the kingdom would limit its draw down to a maximum of $32 billion from reserves this year to fill a widening deficit which it plans to cover instead by increasing borrowing to nearly $60 billion.

Early on Wednesday the finance ministry reported a first quarter budget deficit of $9 billion, mostly because of a drop in oil revenues that reversed a first quarter surplus of around $7.4 billion in 2019.

Oil revenues in the first three months of the year posted a 24% annual decline to $34 billion and pushed total revenues down 22% year on year.

Saudi Arabia, which had registered more than 20,000 coronavirus cases as of Tuesday with 152 deaths, had originally projected a $50 billion deficit this year, or 6.4% of gross domestic product (GDP), widening from around $35 billion last year.

Jadaan has said the deficit could now widen to up to 9% of GDP this year, but some analysts have predicted 22% with oil prices at $30 a barrel.