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Saudi Arabia Reports Record High Foreign Assets as UAE Current Account Multiplies to Put Nation in Good Financial Position

Middle East : 14 September 2012

Foreign Assets Reach Record High for Saudi Arabia

High oil prices combined with increased crude production drove Saudi foreign assets up to a new record high at the close of July, hitting about SR 2,387bn in spite of declining bank deposits.

Saudi’s central bank SAMA saw foreign assets rise by almost SR 25bn in July, as investments in foreign securities rose.

Over the seven-month period beginning in January 2012 the Kingdom’s foreign assets rose by almost SR 230bn, extending a fast and steady rise witnessed over the last few years since foreign assets declined by SR 139bn in 2009 after Saudi posted a fiscal deficit.

Experts expect the Kingdom to post a substantial fiscal surplus again this year, as indicated by the rise in foreign assets and due to increased oil prices and production.

Detailed figures record SAMA’s foreign securities growing from SR 1,427bn at the close of 2011 to SR 1,523bn at the close of June and SR 1,562bn at the close of July.

Deposits in foreign banks declined for SAMA, falling from SR 522bn to around SR 499bn at the close of June. At the close of 2011 those deposits totalled SR 435 bn.

Sharp declines in the late ’90s were followed by rapid increases due to rising oil prices and surging output, except for the declines posted in 2009.

Assets rose by around SR 352bn in 2011, driven by higher oil prices and a spike in Saudi crude output, which moved from about 8.2mn barrels per day to 9.3mn bpd.

That increase was the largest seen since 2008, when a 50-percent hike in crude prices resulted in an increase of SR 513bn and the Kingdom’s highest ever fiscal surplus of SR 580bn.

Last year’s increase was more than twice the asset growth recorded in the previous year, when foreign assets rose from SR 1,570bn at the end of 2009 to SR 1,705bn at the end of 2010.

Supported by robust oil prices, the Kingdom announced a massive SR 690bn budget for this year, and most experts believe that actual spending will come in higher than budget amounts, as the pattern has been for the last few years.

Current Account Surplus in the UAE Quadrupled Last Year

Oil revenues rose to record highs in the UAE, causing the current account surplus to quadruple in 2011, in spite of marked import increases. The government was then able to increase foreign investment, according to official figures.

According to data from the Central Bank, the UAE’s balance of payments surplus dropped by over 40 percent in 2011 due to substantial government transfers into overseas assets and in spite of the notable increase in the current account.

The current account moved from about Dh 26.59bn in 2010 to almost Dh 112.69bn last year, according to data released.

A substantial increase in the trade surplus, moving from Dh 179.87bn in 2010 to almost Dh 291.6bn last year, played a major role in the current account increase. The surging trade surplus was credited to record high oil exports, climbing to Dh 409.8bn from Dh 274.1bn over the year.

Oil exports reached a new high in 2011 as crude prices peaked at a record high average of almost $105 per barrel. The UAE also recorded its highest levels of output, at more than 2.6mn bpd.

Non-oil exports also climbed from Dh 187.3bn to Dh 227.9bn, and re-exports went from Dh 322.7bn to Dh 396.4bn, according to the report.
Imports rose to almost Dh 742.3bn last year, up from the 2010 figures of Dh 604.7bn.

The UAE Central Bank stated that higher oil prices and positive performance for non-oil exports created those trade account and current account surpluses.

The report also covered the sharp decline in the total balance of payment surplus, which dropped from the 2010 figure of Dh 26.9bn to Dh 16.6bn in 2011. A substantial increase in the amount of government transfers into foreign assets was credited for the drop.

These transfers, labelled as enterprises of the public sector, rose from Dh 18.1bn in 2010 to almost Dh 95bn last year.

The UAE in Positive Financial Position According to Central Bank Governor

In spite of rising provisions for bad loans, banks in the UAE ended in a good financial position last year with higher profits, according to Sultan bin Nassir al Suwaidi, governor of the UAE Central Bank.

Positive growth was seen last year in the Arab world’s second largest economy, in contrast to the challenges experienced across global markets.

Last year was positive for the UAE economy, according to Suwaidi, who noted that acceptable levels of growth and an overall balance of payments surplus were achieved in the UAE, coupled by low levels of inflation. The Central Bank released a report on financial stability within the UAE.

Real GDP rose by about 4.2 percent last year, compared with an increase of just 0.9 percent in 2010 and a 3.3 percent contraction the previous year, caused by lower oil prices.

The fiscal balance in the UAE went from a 2.2 percent of GDP deficit in 2010 to a surplus of around 2.9 percent of GDP last year. Soaring crude prices, which reached almost $105 per barrel, were credited for this turnaround.

Banks have seen the benefits of rising growth in the Emirates, with most banks recording higher profit levels in spite of greater provisions for non-performing loans.

The fifty-one banks across the UAE allocated a total of almost Dh 19bn in provisions last year. At the close of June 2012, provisions had rose to a new high of Dh 63 billion.

UAE banks weathered the impact of this increase in bad loans and additional provisions with ample capital and adequate profits, according to Suwaidi.

He also stated that liquidity stayed at acceptable levels, as indicated by almost Dh 80bn in investments made to Central Bank certificates of deposits by the close of last year.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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