Riyadh: Saudi Arabia’s financial position remains strong despite sinking oil prices, although there is “some pressure” on bank liquidity, the finance minister has said.
The kingdom projects a budget deficit of $87 billion (Dh319) this year as a result of the fall in oil revenues, which still account for most of its income.
Among measures to cover the fiscal gap, Riyadh has drawn on its foreign reserves, issued domestic bonds and last week raised $17.5 billion in its first international bond offering.
“We have been able to maintain a good position in public finances,” Ebrahim Al Assaf told a seminar, the official Saudi Press Agency reported late on Tuesday.
“We have been able to maintain the stability of government reserves as they are still high. The level of debt remains low.”
The kingdom’s banks still have strong balance sheets and relatively high levels of capital adequacy and liquidity ratios, “despite some pressure on liquidity at the system level in general,” he said.
A tightening of bank liquidity after the issuance of domestic bonds was the main reason Saudi Arabia decided to borrow abroad, an economist has said.
Saudi Arabian banks’ loan-to-deposit ratio rose for the fifth consecutive month in August, reaching 90.8 per cent, because of faster growth in credit relative to deposits, Riyadh’s Jadwa Investment said in a report this month.
Financial stability
Borrowing abroad also reduces the drain on the kingdom’s foreign reserves.
Official figures show those reserves declined to $562 billion in August from $732 billion at the end of 2014.
Assaf said officials “continue to periodically review our policies relating to financial stability”.
Saudi Arabia has taken a series of austerity measures, including subsidy cuts and reductions in government salaries. Earlier this year, it announced a wide-ranging plan to diversify its economy.
Assaf and his Gulf counterparts were to meet in Riyadh later on Wednesday with International Monetary Fund chief Christine Lagarde.
On Sunday, Saudi Oil Minister Khaled Al Falih said the current cycle of falling crude prices is close to an end as market fundamentals improve.
Oil prices are hovering around $50 per barrel after hitting a 10-year low of less than $30 in January, down from a peak of more than $100 in mid-2014.
