Saudi Arabia’s foreign currency reserves have experienced a significant decline, reaching their lowest level since 2009, according to the country’s central bank. The month of July witnessed a plunge of over $16 billion in reserves, marking the largest drop since the outbreak of the Covid pandemic in 2020.
The decline in net foreign assets can be attributed to Saudi Arabia’s decision to reduce oil production in an effort to stabilize oil prices. The country’s oil output is expected to average 9 million barrels per day (bpd) throughout July, August, and September. This voluntary output cut of 1 million bpd was initially announced for July only but was later extended to encompass August and September as well.
Monica Malik, the chief economist at Abu Dhabi Commercial Bank, predicted that the net foreign asset position would improve in September, particularly with the arrival of the first performance-linked dividend distribution from Saudi Aramco, the country’s prominent oil major. Saudi Aramco recently unveiled plans to distribute performance-linked dividends over six quarters, commencing in the third quarter of 2023.
However, Saudi Arabia’s receipts have been adversely affected by lower crude prices this year compared to 2022 when the country earned approximately $326 billion from windfall tax. In addition, reduced oil exports have further impacted revenues, raising concerns about the potential for a budget deficit in the country.
Data released earlier this month revealed that greater expenditures on diversification efforts, alongside dwindling oil export profits, have led to a widening budget deficit for Saudi Arabia. As the world’s largest crude oil exporter, it is essential for the country to address these fiscal challenges and find alternative revenue streams to ensure financial stability.
With the decline in foreign currency reserves, Saudi Arabia will need to carefully manage its financial resources and explore new avenues for economic growth. Diversifying the economy away from oil dependency will be crucial to mitigate the impact of fluctuating oil prices and protect against potential budget deficits.
In conclusion, Saudi Arabia’s foreign currency reserves have experienced a significant decline, reaching their lowest level since 2009. The reduction can be attributed to the country’s decision to cut oil production, resulting in lower revenues from crude oil exports. To overcome these challenges, Saudi Arabia needs to focus on diversifying its economy and finding alternative sources of income. This will ensure economic stability and protect against potential budget deficits in the future.
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