Nigel Sillitoe, chief executive of financial services market intelligence company Insight Discovery, said fund managers estimate that Sama has pulled out $50bn-$70bn over the past six months.
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A few fund managers have seen several billions of dollars of withdrawals, or the equivalent of a fifth to a quarter of their Saudi assets under management, the people aware of the matter said. The Saudi government, so far, has been short on specifics on how it will reduce spending, though planners are said to be considering measures long viewed as off-limits or unnecessary, including phasing out fuel subsidies and investing in renewable energy.
Saudi’s financial reserves peaked at $737 billion in August of 2014.
Saudi Arabia has withdrawn as much as $70 billion of its assets held overseas as the kingdom’s lavish spending and its destructive war on Yemen is burning through reserves at a blistering pace.
With income from oil accounting for about 80 per cent of revenue, Saudi Arabia’s budget deficit may widen to 20 per cent of gross domestic product this year, according to the global Monetary Fund (IMF).
Even at the current rate of depletion, foreign-exchange reserves should last for at least another eight years, Tuvey said.
Saudi rulers have already borrowed $4 billion from local banks and plan to raise as much as $26 billion in bonds before the end of the year.
Traditionally, a falling currency helps to boost exports by reducing prices relative to other competitors but this would not be the case in Saudi Arabia as commodities – which account for the overwhelming majority of the country’s exports – are traded in Dollars. For years, reserve managers in the world’s emerging economies worked to accumulate war chests of USD-denominated paper in an effort to ensure that in a crisis, they would have sufficient firepower to guard against speculative attacks on their currencies and/or accelerating capital outflows.
The price of oil has roughly halved to close to $50 a barrel in the a year ago and the kingdom’s revenues from its crude sales make up 90 percent of its budget.
“The main reason to buy gold is to hedge against inflation, but inflation is now at record lows – in part thanks to low oil prices imposed by Saudi Arabia”, the analyst said.
Institutions benefited from years of rising assets under management from oil-rich Gulf states, but are now feeling the pinch after oil prices collapsed last year.
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The Saudi Arabian Monetary Agency (Sama) made actuarial pricing compulsory for all insurance firms in early 2013, obliging insurers to price premiums according to clearly defined risk criteria, after extreme price competition among insurers weighed heavily on bottom lines.
