Saudi Arabia's Foreign Exchange Reserves -- Down Significantly From A Year Ago -- April, 2020

This really is a huge story. 30-second elevator speech:

• December, 2019: budget required $84-oil;
• April, 2020: original budget forecast for 2020 requires $110-oil;
• "cash-on-hand": will meet less than four years of projected import costs;
• "cash-on-hand": at current burn rate, is exhausted in 20 months
• pegged to the dollar, Saudi cannot print riyals to get out of this mess

Saudi Arabia's foreign reserves are now down significantly from a year ago. Running the numbers:

• 2014: 28000 SAR million 
• one year ago: 1930000 SAR million
• April, 2020 data: 1682371 SAR million; a drop of 40% since its all-time high in 2014

Link here; and, here:

Run the numbers:

• previous: $473.3
• April, 2020: $448.6
• percent decline: 5.2% 

From MarketWatch, linked above:

Saudi Arabia's foreign reserves dropped sharply in April as the kingdom kept its peg with the U.S. dollar steady while transferring a chunk to its sovereign-wealth fund to bet on stocks beaten down by the coronavirus pandemic.

The kingdom's reserves in recent years have hovered around the $500 billion level, held by its central bank in mostly low-risk assets such as U.S. Treasurys. The implied stability allowed officials to maintain the Saudi riyal's peg to the dollar and demonstrate the kingdom's financial strength as it raised billions in debt to help fund an ambitious spending plan.

Total foreign reserve assets fell by $24.7 billion in April to about $448.6 billion, according to the latest data posted Sunday by the central bank, known as the Saudi Arabian Monetary Authority. They had fallen by $23.9 billion in March -- the largest single-month drop going back two decades.

From ArabNews: the economic benefits of pegging the Saudi riyal to the US dollar.

.... confirmed that maintaining the official exchange rate of 3.75 riyals to the dollar was an anchor of monetary and financial stability.  

It also said that the Kingdom’s foreign exchange reserves remain sufficient to meet all demands of the national economy and cover 43 months of imports and 88 percent of broad money (M3).

Back-of-the envelope:

• at $448.6 billion = 43 months of imports
• for four years = $500.8 billion
• = $125 billion / year
• Saudi Arabia exports 7 million bopd, link here;
• 7 *365 = 2,555 million bbls/year
• = $50/bbl to pay for imports

Saudi Arabia's 2020 budget, as projected in December, 2019, link here:

• revenue forecast: 833 billion riyals ($222 billion)
• a budget deficit of 187 billion riyals ($50 billion)
• 2020 budget: 1,020 billion riyals ($272 billion)
• $275 billion / 2.555 billion bbls/year exports = $107.63
• let's imagine 9 million bbls/day crude oil exports = 3.285 billion bbls/year
• $275 billion (annual budget) / 9 million bopd export = $83.71

From the linked article on Saudi Arabia's budget:

Saudi Arabia on Monday announced a 1.02 trillion riyal ($272.00 billion) budget for 2020, a slight fall in spending that reversed three years of expenditure hikes aimed at spurring growth.

Revenues in 2020 are forecast at 833 billion riyals, widening the budget deficit to 187 billion riyals, or 6.4% of gross domestic product (GDP), as compared with a projected deficit of 131 billion riyals in 2019, according to the budget document.

So, until someone comes up with different numbers, it appears that at the end of 2019, Saudi Arabia:

• needed $84-oil on 9 million bopd export
• they are currently exporting about 7 million bopd
• at 7 million bopd, Saudi Arabia needs, in round numbers, $110-oil
• OPEC basket: slightly under $30 today and it has been much lower this year

I think even Brian Williams could see where this is headed (or not):

Re-posting: by the way, Brian Williams could claim he knew this all along, simply stringing his guest out -- he, the straight man; she, the comedienne, of the NYT editorial board -- not just another journalist, but a member of the NYT editorial board. Later, after all the fallout on social medial (from fifth graders, no doubt) she said she needed a calculator -- forgetting her smart phone already has one.

Really Bad Math, Brian Williams. I never get tired of watching this 

Note: it has been reported that Prince MbS moved $40 billion from "cash on hand" (Saudi's foreign exchange reserves) to its "Public Investment Fund (PIF)." Link here. See this wiki link: the most recent data at that link suggests there is about $320 billion in the PIF; Prince MbS would like to see $400 billion under management in this equity fund. The PIF has about 200 investments of which about 20 are listed. The PIF shows six investment pools, but at its webpage does not show investment amounts, nor what is in each pool. This site is undated but it shows $360 billion in assets.

The Financial Times provides an update:

Saudi Arabia’s sovereign wealth fund snapped up stakes worth at least $7.7bn in US and European blue-chip companies during the first three months of the year (2020) as it aggressively hunts assets at knockdown prices during the coronavirus pandemic. 

The largest investments by the Public Investment Fund, which is chaired by Crown Prince Mohammed bin Salman include a holding in UK energy major BP worth $827.8m, and a stake in Boeing, valued at $713.6m at the end of March, according to a US regulatory filing. 

The fund has also acquired shares in Facebook, Bank of America, Citigroup, Walt Disney, Marriott, Pfizer and Starbucks, the filing showed. Some of the new holdings, including in cruise operator Carnival and concert promoter Live Nation, had been disclosed publicly in recent weeks due to the size of the stakes.

It should be noted that PFE fell as much as 7% in one day last week when a clinical trial for a new breast cancer drug was abruptly halted.

Which, by the way, brings up another point: for all the money and all the decades spent on research for one type of cancer, we certainly haven't seemed to have made much progress. I personally find this quite amazing. With all we know about DNA, RNA, immunology, cancer-in-general, infectious disease, etc., etc., we just seem unable to make much headway when it comes to treating cancer.

The experts disagree with me on this one, and that's fine. I'm looking at it from a different point of view than the experts.

But I digress. Back to Saudi's PIF:

On another note, Prince MbS is going to needs the dividends from his PIF to fund off-shore storage:

More from the linked Financial Times article on the PIF:

At the end of last year, the sovereign wealth fund’s only disclosable holdings were its long-running investment in ride-hailing group Uber and the remnants of a bet on Elon Musk’s Tesla, which it exited in the first quarter. 

Yasir Rumayyan, the PIF’s governor, said last month the $325bn fund was actively looking for opportunities as the Covid-19 pandemic had caused global asset prices to plunge and left companies desperate for cash. 

The PIF has been making overseas investments even as Saudi Arabia faces its worst economic crisis in decades, with the kingdom battered by the twin shocks of Covid-19 and the collapse in oil prices. The PIF said it was a “patient investor with a long-term horizon” and was seeking strategic opportunities “that have strong potential to generate significant long-term returns while further benefiting the people of Saudi Arabia.

So, Prince MbS:

• about $500 billion in foreign exchange reserves ("cash on hand")
• about $400 billion in his PIF 

I would assume that the PIF assets should be easily available to those who follow such things, and maybe we will see a report from the Financial Times or Forbes every so often, but my hunch is that one can use the US Dow as a good proxy. At 10% annual growth, that fund might yield $50 billion, or $4 billion/month. Okay.

Finally: the "austerity" package.

Import fees, June 4, 2020: Saudi raises import fees, see link here:

Let's do the math.

Saudi Arabia imports about $30 billion each quarter, link here. Import fees will range from 0.5% to 15%. Let's assume 15% on all imports. $30 billion x 0.15 = $4.5 billion / quarter or $1.5 billion / month.

PIF generates $5 billion / month on a 10% annual return.

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Price of Oil -- Historical

Link here.

Later, June 2, 2020, headlines:

I about fell off my chair when I saw the author of this article: US oil drillers restart production as prices recover.

The API estimate: the draw was an almost imperceptible half-million bbls. The surprise was that analysts had expected a 3-million build. We'll see EIA numbers tomorrow.

The one hiccup in all this: apparently Saudi Arabia's plunge in "cash-on-hand" is due to a "spending spree" the past several years, highlighted by the Pince MbS's "Vision 2030" plan. If that is true, much of this was due to a spending spree, perhaps the austerity plan will work. The question is how low can the Saudi annual budget go? Was much of their budget based on $100-oil due to a spending spree that can be significantly reduced? Maybe.