A decline in net reserves over the last three months suggests that the world’s biggest oil exporter is using the money to keep up liquidity in Saudi banks and possibly shore up government investment spending too, they said. The result should be slightly positive growth in gross domestic product even as most major global economies and some of Saudi Arabia’s Gulf neighbors endure contractions.
SABB bank, the Saudi affiliate of British banking giant HSBC, has forecast 0.7 percent growth this year down from 4.2 percent in 2008, while investment bank Jadwa has predicted 0.2 percent.
“The economy is still vibrant,” John Sfakianakis, economist at SABB, told AFP. “I don’t think they have any systemic risks.”
“The domestic economy here is pretty healthy” despite a fall in oil export earnings, added Jadwa’s Paul Gamble.
The Saudi Arabian Monetary Agency (SAMA) released data on Saturday showing a nearly two percent decline in reserves in February to SR1.585 trillion ($ 422.6 billion), from January.
Reserves peaked at $ 443.2 billion last November following a year of skyrocketing oil prices.
Sfakianakis said the government is injecting more funds into the banking sector to stimulate lending, which slowed late last year as Saudi banks began to feel the impact of the global crisis.
But the government could also be using the reserves to fund its budget because of a slowdown in oil receipts due to lower crude prices over the past four months, according to Gamble.
“I assume the oil revenues are less than the government is spending,” he said. Government spending on major infrastructure, education and health sector projects — projected at some $ 400 billion over the next five years — is crucial in driving the economy.
Private investment flows from abroad have slowed and domestic consumers have pared back their shopping, made nervous by the global downturn.
“Consumers have taken a big hit from the fall in the (Saudi) stock market,” said Gamble.
The plunge of oil prices from a peak of $ 147 a barrel in July to a low of around $ 30 near year-end led to the government budgeting a SR65-billion ($ 17-billion) deficit for 2009, out of SR475 billion ($ 127 billion) in total spending.
Together with their OPEC partners, the Saudis have had to cut oil production to lift the price back to its current level of around $ 50, possibly leaving government receipts — mostly derived from oil exports — short of original projections.
However, economists say that if the current price and production levels can be sustained, the Saudi government should be able to pass the year without tapping significantly into its reserves.
There is little likelihood of any fiscal stress at any rate. In 2008 the country racked up its best-ever surplus of SR590 billion ($ 157 billion) in 2008 on the back of soaring crude prices.
