SAMA’s Foreign Assets Reach Record SR744.96bn

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P.K. Abdul Ghafour & Tang Li, Arab News

JEDDAH/SINGAPORE, 30 September 2006 — The Saudi Arabian Monetary Agency’s (SAMA) foreign assets grew by 4.2 percent in August to reach a record SR744.96 billion ($198.66 billion), according to the agency’s monthly report.

The report said inflation rate in the Kingdom rose by 2.2 percent in July while the monetary flow in August grew by 2.4 percent to reach SR611 billion ($163.2 billion).

“The cost of living index increased by 101.7 points in July against 101.3 points in the previous month,” the monthly report said.

Meanwhile, a Public Information Notice released by the International Monetary Fund (IMF), described Saudi Arabia’s economic performance last year as, “Impressive.” It predicted a growth rate of 6 percent for this year.

Much of this was a result of increased oil production though the Kingdom’s sustained structural reforms and continued macroeconomic stability also played a big part in the economy’s performance.

Real GDP growth of 6.6 percent was described as “strong.” Of this total picture, the oil GDP grew at a rate of 5.9 percent while the non-oil GDP grew by 6.8 percent. The Kingdom’s inflation remained low at 0.7 percent, which was credited as being a reflection of an open and flexible labor market and open trade system.

Saudi authorities were also credited for continuing to respond constructively to alleviate the pressures created by the fast growing global demand for oil by increasing oil production, implementing an ambitious investment plan to expand the country’s sustainable gross production capacity to 12.5 million barrels per day by 2009, and expanding its refining capacity by 44 percent over the next five years.

High oil prices helped the external current account surplus increased by eight point six percentage points to reach 29.3 percent of GDP in 2005.

Oil prices at $60 a barrel are still “very healthy”, a top official of Saudi Arabia’s central bank said on Tuesday according to Reuters.

Oil prices have eased from a record $78.40 a barrel in July, providing relief to importing nations around the world. Prices fell to six-month lows under $60 a barrel on Monday, and were trading around $61.50 on Tuesday.

The central government overall surplus almost doubled to 18.4 percent of GDP, despite a sharp increase in expenditures. A part of the surplus was used to reduce central government debt by 25-percentage points to 39.6 percent of GDP. The Saudi Arabian Monetary Agency’s (SAMA) net foreign assets increased by $66 billion to $150.5 billion, an equivalent of around 16 months of imports of goods and services.

The banking sector performance strengthened in 2005, partially from income from stock market-related activity. SAMA introduced measures to limit bank credit exposure to the equity market and strengthened oversight rate. The Saudi riyal appreciated by 3.4 percent in real effective terms during the 12-month period through March 2006, reflecting the movement of the US dollar against other major currencies.

Prospects for the year 2006 were described as being “favorable”. Much of the optimism came from sustained high oil prices but it was also noted that structural reforms had improved the investment climate and helped pave the way for the Kingdom to join the World Trade Organization in December 2005.

The executive directors commended the Saudi authorities for maintaining sound macroeconomic policies and implementing structural reforms over the past several years. This was credited for invigorating the private sector. Efforts to use the large fiscal and current account surpluses from high oil prices to reduce public debt and build large external assets position to reduce the economy’s vulnerability to oil price fluctuations were praised.

The directors encouraged Saudi authorities to sustain the broad-based expansion of the non-oil economy to create jobs for the Kingdom’s growing labor force.

Saudi Arabia was also commended for being a steward of the oil market, by ensuring stability though increased oil production and investment in increasing its ability to expand and production and refining capacity. The directors also welcomed Saudi Arabia’s active participation in the Joint Oil Data Initiative as part of international efforts in providing accurate and up-to-date petroleum production and consumption data.

The directors recommended that Saudi Arabia formalize a medium-term fiscal framework and include all future allocations within the annual budgets. They welcomed the authorities’ request for Fund technical assistance in the areas of expenditure management and broadening of the non-oil revenue base.

— With input from agencies