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The New Arab

Saudi reserves continue to fall as the kingdom spends overseas

Reserves fell by about $21 billion in April [Getty]

Date of publication: 1 June, 2020

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Saudi's foreign reserves fell for a second month, totalling up to a $48 billion decline in March and April.
Saudi Arabia's foreign net reserves saw another steep drop for a second month after the kingdom said it made a transfer worth $40 billion to finance an investment spree abroad by its sovereign wealth fund.

Reserves fell by about $21 billion in April, following the transfer to the Public Investment Fund, a report by the Financial Times said on Monday.

The amount comprises a near 4.5 percent decrease from the previous month, according to data released by the Saudi Arabian Monetary Authority late on Sunday.

In March, the reserves plunged by $27 billion, the fastest decline recorded in over two decades.

The decline was expected, the report said, as the fund buys up stakes in foreign companies and conglomerates.

As Saudi struggles to deal with the blow to the oil sector resulting from the coronavirus pandemic, its investment fund is taking advantage of the fall in stock prices to invest in international companies.

Saudi Arabia has now tripled its value-added tax and introduced biting austerity measures, including cutting 30 billion riyals ($8 billion) from Crown Prince Mohammed bin Salman's Vision 2030 – aimed at diversifying the kingdom’s economy away from oil.

The government is also reportedly looking to its 'largest-ever debt program' in order to cap the depletion of reserves at 120 billion riyals. 

Last month, Moody's Investors Service – an American rating agency – downgraded Saudi Arabia's outlook rank from stable to negative, citing the crash in oil prices caused by the coronavirus pandemic. 

Read more: US rating company downgrades Saudi Arabia's outlook to 'negative', citing coronavirus oil crash

The report claimed that Saudi is slated for more steep government debt and fiscal deficit, but maintained its top "A1" rating for the kingdom's sovereign credit, as analysts cited the Saudi government's "still relatively robust, albeit deteriorating" balance sheet, moderate debt level and substantial fiscal and external liquidity buffers.

For Saudi Arabia to preserve the Riyal's peg to the dollar, it will need to keep its reserves above $300 billion, the FT cited economists saying.

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