Riyadh – Mubasher: In a report issued Sunday, Bank of America Merrill Lynch said Saudi Arabia has liquid foreign assets of $700 billion (100% of GDP), which could last 5-6 years at unchanged fiscal policies, and no debt issuance at $30/bbl.
"Still, at current oil prices, a radical fiscal policy overhaul is required to stabilize FX reserves. At $25/bbl, 4-5pp of GDP annual fiscal consolidation effort is required to keep the Saudi Arabian Monetary Authority’s FX reserves at a third of their level (while exhausting government deposits at SAMA). We think this could be achieved through capex cuts, value-added tax introduction or subsidy reforms," said the bank.
"Saudi Arabia can handle the pain," it noted
February data suggests domestic liquidity continues to tighten as M3 growth dropped to negative territory alongside weaker point-of-sales consumption data. Still, this may be partly due to negative base effects and weaker oil prices, which may partly dissipate in data releases of the coming months. SAMA’s foreign assets fell by $9.4bn in February, which is more than the combined $1bn drop in government deposits at SAMA and the $5.3bn domestic debt issuance. This likely suggests persistent capital outflows, according to the report issuer.
