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Saudi government reserves at central bank hit to fuel Vision 2030 investments
RIYADH: Saudi Arabia’s reserves at the Kingdom’s National Bank have fallen 58% since 2016 as the government continues to fund its economic diversification plan, Vision 2030.
In April 2016, public funds of the Central Bank of Saudi Arabia stood at SR957 billion ($255 billion), but now stands at SR402 billion.
Albara’a Al-Wazir, an economist at the Saudi-American Business Council, told Arab News that the drawdown from the reserve fund occurred as oil money fell during the period.
“The decline in the Kingdom’s oil revenues in light of lower oil prices has resulted in a budget deficit every year since 2013, leading the government to institute a two-pronged approach,” he said, adding: “The first was to tap into its vast local and foreign reserves, and the second was to approach the debt markets by issuing debt securities to finance the growing expenditure of the state.
Reserves have continued to fall in recent years despite the rebound in oil prices to high levels.
Government accounts with the central bank fell by SR35 billion and stood at SR402.4 billion in April compared to March, according to the latest data from the Central Bank of Saudi Arabia.
The monthly decline stems from the government’s current account and its reserves, which fell by SR 16.3 billion and SR 18.7 billion respectively in April.
Government reserves, which stood at SR319.1 billion in April, were down 10.8 percent year-on-year to SR38.8 billion. Current accounts totaled SR83.4 billion in April, but registered a year-on-year increase of 39% or SR23.3 billion.
In recent years, the central bank, which invested primarily in US bonds and similar low-risk assets, has been eclipsed by the Public Investment Fund, now the main investment vehicle for sovereign currency.
Al-Wazir said: “With the recent improvement in oil prices, the government aims to avoid the pro-cyclical spending of previous oil booms as it launches its fiscal sustainability program, which aims to decouple increased government spending from increase in oil revenues”.
With the Vision 2030 development plan, the Kingdom wants to diversify its economy and end its long-term dependence on oil.
The PIF was established in 1971 and re-established in 2015 when it was placed under the new Council for Economic Affairs and Development.
Al-Wazir said, “The drawdown on government reserves is fueled in part by the need to meet the Kingdom’s financing needs associated with private sector stimulus packages.
“Furthermore, the Kingdom’s significant diversification plans require capital injection into several vision realization plans such as the PIF and national transformation programs.”
“Despite the decline in government reserves over the years, current levels are still within an acceptable range, according to the finance ministry,” Al-Wazir added.
Al-Wazir said the Saudi government would likely continue to replenish its reserves, as usual during oil booms.
However, the focus will be on the development of the non-oil economy of the Kingdom through the PIF and the National Development Fund, which will prevail over the previous periods.