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Saudi urged to diversify currency investment

By Staff Bank says diversification is needed to cushion global turmoil
Saudi Arabia should diversify its foreign currency investment to offset possible risks arising from the global financial turmoil despite a sharp rise in the Gulf Kingdom's overseas assets, its largest bank has said.

The country's total net foreign assets, controlled by the Saudi Arabian Monetary Agency ( Sama ), swelled by a whopping SR291.8 billion ($77.8bn) in the first 10 months of 2011 because of a surge in the country's oil export earnings, National Commercial Bank (NCB) said in a study sent to Emirates 24/7.

During October alone, Sama 's net foreign assets gained a staggering 20.3per cent Y/Y, as it proceeds with providing a safety cushion for the Saudi economy.

" Sama should begin to diversify its portfolio in other currencies to mitigate risks. It seems officials have more challenges ahead in 2011 as the global economy takes another hit," the study said.

It gave no breakdown for Sama 's investments but it is believed most of its currency assets are based in US dollar.

Sama 's total foreign assets smashed through the SR2,000bn mark at the end of September for the first time before they slipped back to nearly SR1.993bn at the end of October

But they remained way above their level of SR1,705bn at the end of 2010 and more than double the assets of SR884bn at the end of 2006.

A breakdown showed most of Sama 's assets are investment in foreign securities, which totalled around SR1,39bn at the end of October 2011, nearly 70 per cent of the central bank's total foreign assets.

Deposits with banks abroad stood at SR392bn and other miscellaneous assets at nearly SR20.1bn. The rest covered foreign currencies and gold, as well as cash in vault, including SR20bn in notes.

The surge in Sama 's foreign assets this year was a result of a sharp rise in oil prices, which averaged over $100 in the first 10 months of 2011, nearly $50 above Saudi Arabia's budget forecasts.

The assets have steadily grown in most of the past few years as a result of higher oil prices, gaining nearly SR165bn through 2010.

They recorded their largest increase of nearly SR513bn during 2008, when oil prices climbed to their highest annual average of nearly $95 a barrel. But a sharp fall in crude prices depressed them by SR139bn in 2009 to widen the actual budget shortfall to nearly SR87 billion following a record high surplus of nearly SR580bn in the previous year.

In 2010, the budget reverted into a surplus of SR109bn after oil prices increased by at least $15 a barrel. For 2011, Saudi Arabia announced another record high budget of SR580bn for 2011, with a deficit of SR40 billion.

But analysts believe the shortfall will again revert into a surplus at the end of the year on the grounds the oil price assumed by Riyadh of just under $60 will be far below the expected actual price.

© Emirates 24|7 2011