Saudi Arabia’s net foreign reserves fell by about $21bn in April after Riyadh transferred billions of dollars to its sovereign wealth fund to finance its overseas spending spree. Figures released by the central bank late on Sunday revealed that the country’s foreign reserves had fallen to $444bn, the second consecutive monthly decline. Net reserves dropped by about $24bn in March. The decline in April was expected after Mohammed al-Jadaan, the finance minister, said on Friday that $4obn in foreign reserves had been transferred to the Public Investment Fund, which is aggressively buying stakes in US and European blue-chip companies as it seeks to take advantage of the Covid-19 crisis to snap up assets cheaply. The transfer to the fund took place in March and April.
The use of Saudi Arabia’s reserves to finance the PIF’s activities is contentious as the kingdom grapples with its worst economic crisis in decades, some analysts say. The world’s top oil exporter has been battered by the twin shocks of coronavirus and the fall in crude prices. It is also indicative of the radical changes that have taken place in the kingdom under the leadership of Crown Prince Mohammed bin Salman, who chairs the PIF. Traditionally, the kingdom conservatively invested its reserves, which are managed by the Saudi Arabian Monetary Authority, and predominantly bought USTreasury bills and other low risk and liquid assets. “Risking the sovereign’s reserves for uncertain returns is a very high-stakes game rarely done,” said an analyst, who did not want to be named.
Economists estimate that the kingdom needs to keep its reserves above $3oobn to preserve the riyal’s dollar peg. The government, which insists it will maintain the peg, has introduced tough austerity measures, including cutting state spending, suspending civil servants’ cost of living allowances and tripling VAT to 15 percent. It is also ramping up its borrowing as it grapples with a ballooning budget deficit that isforecast to hit double-digits this year. The PIF, meanwhile, has spent at least $8bn buying stakes in global companies in the first three months of the year, including BP, Royal Dutch Shell, Total, Boeing, Citigroup, Disney, Facebook and Carnival, the cruise line operator.
John Sfakianakis, a Gulf expert at Cambridge University, said that Mr. Jadaan’s explanation on Friday for the decline of reserves was welcome.