Saudi financial reserves keep pressure off the currency peg

LONDON: Saudi Arabia is under no pressure to ditch the currency peg to the dollar thanks to its currency reserves.
That is according to a report by Indosuez Wealth Management, the global wealth management arm of France’s Credit Agricole Group.
The report looked at the current account balances for the Gulf region in the wake of the 2014-2015 oil price collapse.
Gulf countries rely heavily on oil sales. The oil price collapsed from $108 per barrel in June 2014 to as low as $29 in January 2016. It is now trading at $48 per barrel. But while that has impacted the financial strength of several countries, it does not represent a threat to the peg, said the report.
“Saudi Arabia is able to rely on its reserves that remain considerable and amount to more than two years’ worth of imports,” said Dr. Paul Wetterwald, chief economist at Indosuez Wealth Management business line.
“This should allow the authorities to withstand any pressure on the peg.”
Saudi Arabia’s current account went from a surplus to a deficit of 8.3 percent in 2015. More recently the country avoided running a twin deficit in the first quarter of this year as the Ministry of Finance disclosed a budget deficit of 4 percent of gross domestic product (GDP) annualized, and a rebound in the oil price helped to get the current account back in surplus.
Exports gained and imports declined due to weak domestic demand, resulting in a $6 billion surplus mainly due to oil-related exports receipts.
Despite this, the capital account displayed large outflows reflecting possibly reallocation of sovereign wealth. Reserves continued to decline over the January-May 2017 period and stand now at $499 billion.