Saudi reserves plunge in March as Q1 budget slips into US$9b deficit

General view shows some cars on the street, after curfew lifted, which was imposed to prevent the spread of Covid-19 in Riyadh, Saudi Arabia, March 24, 2020. — Reuters pic
General view shows some cars on the street, after curfew lifted, which was imposed to prevent the spread of Covid-19 in Riyadh, Saudi Arabia, March 24, 2020. — Reuters pic

RIYADH, April 29 — Saudi Arabia’s central bank foreign reserves plunged in March to their lowest since 2011 while the kingdom slipped into a US$9 billion budget deficit in the first quarter as oil revenues collapsed.

Saudi Arabia, the world’s largest oil exporter, is facing an unprecedented challenge this year as oil hits historic lows and measures to contain the spread of the new coronavirus are likely to curb the pace and the scale of sweeping economic reforms launched by Crown Price Mohammed bin Salman.

The Saudi Arabian Monetary Authority said yesterday its net foreign assets fell in March to US$464 billion, a 5.7 per cent drop month on month, and their lowest since April 2011.

The decline signals the kingdom has started tapping into its vast reserves to offset the economic damage caused by lower oil prices and a severe coronavirus-driven slowdown of entire sectors of its non-oil economy.

Finance Minister Mohammed al-Jadaan said last week the kingdom would not draw down more than US$32 billion from its reserves this year and would instead increase its borrowing to nearly US$60 billion to contain a widening deficit.

Early today the finance ministry reported a first quarter budget deficit of US$9 billion, mostly due to a slump in oil revenues, that reversed a first quarter surplus of around US$7.4 billion in 2019.

Oil revenues in the first three months of the year posted a 24 per cent annual decline to US$34 billion and pushing total revenues down 22 per cent year on year, the ministry said.

Saudi Arabia, which had registered over 20,000 coronavirus cases as of yesterday with 152 deaths, had projected a deficit of US$50 billion this year, or 6.4 per cent of gross domestic product (GDP), widening sharply from 131 billion riyals last year.

But that was before the coronavirus and the recent plunge in oil prices. Jadaan has said the deficit could widen to up to 9 per cent of GDP this year, but some analysts have predicted a deficit of 22 per cent with oil prices at US$30 a barrel.

The Organisation of the Petroleum Exporting Countries and other large oil producers, including Russia, have agreed to cut output by almost 10 million barrels per day (bpd), or 10 per cent of global oil production, in May-June, in an attempt to balance the market.

While the size of the output cuts is unprecedented, demand has fallen even more and storage for all unused oil is shrinking quickly as global measures to combat the pandemic have brought many economies to a virtual standstill.

Brent crude futures were trading at around US$21 a barrel today.

Jadaan said last week he expects the pandemic to cause a slump in activity in the non-oil private sector too this year and that the government could launch new measures to prop up its economy on top of US$32 billion in emergency stimulus measures announced last month.

Riyadh last month raised its debt ceiling to 50 per cent of GDP from 30 per cent. It has already borrowed US$12 billion in international bonds this year. — Reuters

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