JEDDAH, 27 April 2006 — Due to higher oil revenues, impressive growth in non-oil exports and favorable macroeconomic conditions, the net foreign assets held by Saudi Arabian Monetary Agency (SAMA), autonomous government institutions (AGIs) and local commercial banks increased by 42.9 percent to SR752.8 billion in 2005.
This trend in net foreign assets growth seems to be heading for another record year in 2006, showing further increases of 2.7 percent to SR773.2 billion at the end of January, according to the market review of the Jeddah-based National Commercial Bank (NCB).
As of January 2006, SAMA held the largest share at 75.8 percent of the combined total net foreign assets, followed by AGIs (21.2 percent), and the remaining 3 percent were held by local commercial banks.
The combined official and banks’ net foreign assets have been growing at 16.83 percent between 1999 and 2005, a rate much faster than the 11.4 percent growth recorded for the nominal GDP in the same period. The total official and banks’ net foreign reserves of 2005 accounted for nearly 65.2 percent of nominal GDP and provided cover for merchandise imports equivalent to 44 months compared to the internationally accepted benchmark of 4 months.
In the report, NCB Chief Economist Dr. Said Al-Shaikh said, “The high level of foreign exchange reserves has enforced the stability of the riyal exchange rate and the low price inflation in the country. At the end of 2005, every SR100 in money supply (M3) was backed by SR138 in the official and banks’ net foreign assets. This ratio further improved to SR141 in January 2006, an impressive cover which a few countries are currently enjoying worldwide.”
The Kingdom’s regulations require that each riyal of currency issued by SAMA must be backed by an equivalent amount of foreign currency or gold.
Foreign currency deposits of private individuals and businesses held by local banks increased nearly by 19 percent to SR77.7 billion in 2005, while foreign assets of mutual funds increased by 34.8 percent to SR21.3 billion in the same year. Thus, the combined foreign assets of local businesses and residents in bank deposits and mutual funds amounted to SR99 billion in 2005, nearly 22.1 percent up from 81.1 billion in the year before. These foreign assets are estimated to have further grown by 0.6 percent to SR99.7 billion in January 2006.
The NCB report said at the end of 2005, SAMA accumulated total gross foreign assets equivalent to SR573.68 billion and after deducting the SR10.12 billion worth of liabilities in the form of bank deposits by foreign institutions in Saudi riyals, the residual SR563.56 billion amounts to the net-foreign assets. The SAMA’s portfolio of net foreign assets in foreign securities, which accounted for nearly 64.5 percent of the total, expanded nearly 87.5 percent to SR370 billion in 2005. This was followed by SAMA’s deposits with banks abroad, which grew by 135.5 percent to SR114 billion in 2005 and represented nearly 19.9 percent of the total. The third item in SAMA’s net-foreign assets consisted of foreign currency convertible to gold, which accounted for nearly 15.6 percent of the total and expanded by 7.6 percent to SR89.75 billion in 2005.
The net-foreign assets of AGIs recorded an annual growth of around 6.2 percent and reached SR162.8 billion by end of 2005. Investments in foreign securities accounted for 98 percent of total net-foreign assets and the remainder 2 percent was placed in deposits with foreign banks. In January 2006, net-foreign assets of AGIs climbed nearly 0.7 percent to SR163.9 billion.
Saudi commercial banks maintained foreign assets in excess of foreign liabilities, thus elevates the position of banking industry to the rank of a net-provider of capital to the rest of the world. Nearly 58 percent of the total net-foreign assets were held in highly liquid assets while the remaining 42 percent were invested in other less liquid assets. After falling by 43.9 percent to SR26.39 billion in 2005, the combined net-foreign assets of local commercial banks dropped further by 11.3 percent to SR23.4 billion in January 2006.
According to the NCB market review, foreign assets held in mutual funds increased by 34.7 percent to SR21.31 billion at the end of 2005, and are estimated to have risen further by 3.2 percent to SR22 billion in January 2006. By December 2005, the foreign assets based mutual funds comprised of 68.8 percent in foreign shares, 7.5 percent in foreign money market instruments, 0.4 percent in foreign bonds and the residual 23.3 percent in various other kinds of foreign assets. Thus, the overall aggregate of net foreign assets has reached SR851.8 billion by the end of 2005.
Following sharp increases in oil prices since 2001, Saudi Arabia began registering substantial surpluses in the balance of payments over the last few years. This has enabled the Kingdom to hold higher levels of foreign reserves, accelerating to reach SR851.8 billion in 2005. The Kingdom’s aggregate level of net foreign assets stood at nearly 75.6 percent of total nominal GDP in 2005 and around 52 months equivalent of merchandise imports. With aggregate stock of broadest money supply (M3) of SR549.76 billion, the overall foreign exchange cover on each SR100 in (M3) amounted to SR156 at the end of 2005.