Update On Saudi Arabia Foreign Exchange Reserve Stories These Past Few Months -- July 18, 2016

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July 19, 2016: OPEC's Pyrrhic victory. 
 

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Update on Saudi Arabia foreign exchange reserves.

The most recent data is May, 2016:

Foreign Exchange Reserves in Saudi Arabia increased to 2179747 SAR Million in May from 2177649 SAR Million in April of 2016.

Foreign Exchange Reserves in Saudi Arabia averaged 2280987.77 SAR Million from 2010 until 2016, reaching an all time high of 2796941 SAR Million in August of 2014 and a record low of 1569145 SAR Million in April of 2010. Foreign Exchange Reserves in Saudi Arabia is reported by the Saudi Arabian Monetary Agency. 

From March 30, 2016, the BusinessInsider headline: "Saudi foreign exchange reserves slide to lowest levels since 2012."

Saudi Arabia, the Gulf State which is taking a beating from the crash in oil prices, got another chunk of bad news on the state of its economy.

In a note released by analysts Simon Williams and Razan Nasser, HSBC shows that in February, the country's foreign-exchange holdings took another big dive, adding to the massive losses in foreign currencies held by the oil rich nation seen in the past couple of years.

HSBC shows that FX reserves dropped by more than $9 billion (£6.2 billion) in February, falling to their lowest level in nearly four years, and continuing their inexorable slide lower. Reserves had fallen by £14 billion (£9.7 billion) in January.

The amount of reserve assets held by the Saudi government now stands at $593 billion (£411 billion), more than $150 billion (£104 billion) down from its recent peak in late 2014, just before oil prices started plummeting.

From June 5, 2016, the Bloomberg headline: "Saudi Arabia races through financial toolkit to raise funds."

Saudi Arabia’s plans to bolster its finances are taking on a new sense of urgency as lower oil prices put the economy under more strain than at any other time in the past decade.

In recent weeks, the kingdom raised a $10 billion loan, clamped down on currency speculators and informed banks of plans to raise as much as $15 billion in its first international bond sale, people with knowledge of the matter said. It’s also said to be contemplating IOUs to pay contractor bills and hired HSBC Holdings Plc banker Fahad Al Saif to set up a new debt office.

The speed of the measures underscores Deputy Crown Prince Mohammed bin Salman’s urgency to shore up the country’s finances as an era of oil-fueled abundance falters. Though currency reserves remain strong -- among the world’s largest -- net foreign assets are at a four-year low after declining for 15 months in a row and the kingdom may post a budget deficit of about 13.5 percent of economic output this year.

“The pace of the decline in Saudi Arabia’s foreign assets is faster than in previous oil downturns and the period over which they’ve been falling is longer,” Raza Agha, VTB Capital’s chief economist for the Middle East and Africa, said by e-mail. “This generates a real sense of urgency to get the ball rolling in raising external funding.”

From February 24, 2016, the Forbes headline and analysis: "Three reasons Saudi Arabia is so desperate for cash. The kingdom has 3 - 5 years of cash reserves left."

There is one key principle driving Saudi Arabia to sell shares in Aramco: the kingdom needs money to buy time.

The Saudi Arabia Monetary Authority (SAMA) acknowledges that the country ran a deficit of 21.6% of GDP in 2015—a quantum leap from 3% the prior year. They hope to cut that to 13% in 2016. However, the IMF expects a deficit of 20% in 2016.

They have burned through almost $100 billion in reserves the last few years. A second, similarly sized deficit would consume another $100 billion. Reserves now stand at roughly $650 billion.

The problem with those estimates is that they assume an average price for Saudi light crude of $50 in 2016. As we write this article, West Texas Intermediate (WTI) is priced around $30. And that is the delivered price of oil. The actual price a producer gets is even less. 

And finally, from October 28, 2015, a News headline: "IMF predicts Saudi Arabia's cash reserves will deplete in five years."

Watching your bank account dwindle by $930 billion in five years is a scary prospect. But that’s the reality facing one of the world’s richest countries, which could run out of cash by 2020.

If the government continues spending at current levels, without taking into account the collapsing value of oil, Saudi Arabia will be in real trouble.

A report released by the International Monetary Fund this week contains a dire warning for the gulf kingdom — that if oil prices remain at their current lows, the country will run out of cash very quickly.

For decades the petro-state, which is home to 28 million people, has relied on its huge oil reserves to fill the state coffers but that luxury might be coming to an end earlier than anticipated.

The IMF’s Regional Economic Outlook report for the Middle East and Central Asia said “low oil prices will wipe out an estimated $US360 billion from the region this year alone.”

The current price of oil is $US50 a barrel. That figure has plunged by more than half from peaks above $US100 a barrel in June last year due to slackening demand in the global economy, record production, and a strong US dollar.