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3 Minutes to Read DUBAI, United Arab Emirates (Reuters) – The Saudi central bank governor told Reuters that the recent dip in foreign reserves, a gauge of the country’s capacity to support its dollar-pegged currency, was partially due to a lag between import payments and export earnings. PHOTO FROM THE FILE: Governor of the Saudi Arabian Monetary Agency Fahad al-Mubarak attends the 58th Gulf Cooperation Council (GCC) annual meeting of central bank governors in Manama on September 18, 2013. Hamad I Mohammed/Hamad I Mohammed/Hamad I Mohammed/Hamad I Mohammed/Ha SAMA, or net foreign assets at the central bank, fell by nearly $8 billion in April to $436 billion, the lowest level in more than a decade, and fell even more in May, to around $433 billion, according to latest central bank data. “Reserve reductions in recent months were mostly to finance a resurgence in pandemic-affected import demand, while leads-and-lags in oil income (taxes and dividends) generate some degree of variation in SAMA’s reserves level,” said Fahad al-Mubarak, the central bank’s governor. Given the recent increase in oil prices, the decreases looked illogical, and several experts speculated that they could be linked to transfers to the Saudi sovereign wealth fund, Public Investment Support, which received $40 billion in reserves last year to fund investments. “The recovery in import activity, which peaked in May 2020, came ahead of the recovery in export receipts. Given the exceptional economic repercussions over the last 18 months, these developments are to be expected when economic conditions normalize “In a statement to Reuters, the governor added. The reasons for the change in net foreign assets are typically not disclosed by the central bank. They’re comfortably over what Riyadh would need to keep the peg, at $433 billion, but weaker oil prices have damaged the Saudi riyal in the futures market in recent years, as speculators predict the kingdom will be forced to devalue its currency. According to the most recent official trade numbers, Saudi imports totaled 49.1 billion riyals ($13.09 billion) in April. This is up 17.5 percent year over year and 33 percent over May of last year. In April, exports grew by 87 percent year over year, with oil shipments increasing by 109 percent. “Because of the relatively small production base, any increase in domestic demand as a result of the COVID-19 limits is mostly satisfied by imports,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank. “However, the strong increase in the price of oil is boosting exports, which we expect to outpace import growth in 2021,” she said. (1 dollar = 3.7504 riyals) Davide Barbuscia contributed reporting, and Alex Richardson edited the piece./nRead More

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