Saudi central bank governor explains reason for declining foreign exchange reserves

Saudi Central Bank Governor Fahd Al-Mubarak said the recent decline in foreign exchange reserves is due to reasons such as the time lag between import payments and export earnings.

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The central bank’s net foreign assets, a measure of the kingdom’s ability to peg its currency to the dollar, fell from $ 8 billion a month ago to $ 436 billion in April, the lowest level since more than ten years, then came back down in May, according to the latest central bank data, to around $ 433 billion.

Al-Mubarak told Reuters: “The decline in reserves over the past two months is mainly due to funding the resumption of demand for imports that have been affected by the pandemic, while the increase or delay in income oil from taxes and distributions causes some fluctuation in the level of central bank reserves.

The drop seemed surprising given the recovery in oil prices, and some analysts say it could be linked to transfers to the sovereign wealth fund, the Public Investment Fund, which received $ 40 billion last year. reserves to finance investments.

The governor said in a statement to “Reuters”: “The resumption of import activities, which recorded a low level in May 2020, was preceded by a recovery in the value of exports. These changes are expected in view exceptional economic repercussions over the past 18 months, with economic conditions returning to a level closer to normal. “

The central bank usually does not disclose the reasons for the change in the level of net foreign assets.

He pointed out that at $ 433 billion, reserves are far more than what Riyadh needs to protect the currency’s peg, but episodes of low oil prices in recent years have hurt the Saudi riyal on futures markets, with investors betting that the kingdom may eventually have to devalue its currency. .

(US dollar = 3.7504 Saudi riyals)

Source: Reuters

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