Yasser Ibrahim has left NBE (UK) to become a Managing Director at ODDO BHF. He has been replaced by Yasser Hassan.
Saudi reserves, deficit and bond issues: some figures
The Saudi government budget for 2015 projects a deficit of $38.6 billion, based on revenues of $190.7 billion and expenditures of $229.3 billion. That deficit figure is three times higher than the outcome reported for 2014 ($14.4 billion) and reflects an expectation of lower oil revenues duruing 2015. Remember that the decline in oil prices began in mid-2014, so the Kingdom was still enjoying strong oil revenues in the first half of the year. However, note that actual expenditure during 2014 was $293.3 billion, according to the Ministry of Finance – much higher than the $229.3 billion projected for 2015. If the Saudi government spends the same amount this year as it did last year, and its revenue projections come in on target, then the deficit will be $102.6 billion – but of course, that is hypothetical and in the current environment one should expect expenditure to fall, even if it does not fall by as much as projected.
The Saudi Arabian Monetary Agency (SAMA) had net foreign assets of $661 billion at the end of July 2015, according to SAMA's own monthly bulletin. (SAMA's numbers in Riyals are converted here to dollars at $1 = SR3.75.) This compared to $724 billion at the end of December 2014.
The Saudi Government has raised $14.7 billion through three bonds issues, over the last few months, according to regional press reports. It raised SR 15 billion ($4 billion) in July, SR 20 billion ($5.33 billion) in August and another SR 20 billion in September. The first issue was bought locally, press reports say, but the destination of subsequent issues is less clear. The government has been issuing for five, seven and ten years.
Saudi commercial banks had net foreign assets of $58.5 billion at the end of July 2015, with gross foreign assets of $78.4 billion. This is relevant because it gives a sense of how much capacity Saudi banks have to buy their own government's debt – by redeploying funds out of foreign assets – without reducing lending to the local private sector.
'Independent institutions and agencies' had overseas investments of $103 billion at the end of July 2015, according to SAMA. These bodies include para-statals such as the Public Investment Fund that are often used to support local financial needs.
The IMF's 2014 Article IV Report on Saudi Arabia estimated that nominal gross public debt would be 2.5% of GDP in 2015. That report was based on information collected up until mid-May 2014 (before the oil price began to fall). The discussions for the 2015 Article IV report were held in May this year, but the full report has not yet been published.
Saudi Arabia has AA- ratings from Moody's and S&P and an AA rating from Fitch. These are very high ratings, and should give Saudi Arabia easy access to international debt markets.
Putting these figures together, it is clear that Saudi Arabia has ample financial capcity to withstand a downturn in oil prices over the medium term. It has the ability to raise much more debt that it currently holds while still remaining within prudent debt-GDP management. Local banks and state-owned institutions have some capacity to fund the government deficit, but high credit ratings also give the Kingdom access to international capital markets. And the government still has more than $600 billion in net foreign reserves.
A crucial number to look out for, at the end of this year, will be the Saudi Government's declaration of actual spending for 2015, showing the extent to which they have been able to reduce expenditure and, hence, limit the budget deficit.
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