Saudi Arabia Is Burning Through Its Foreign Reserves at a Record Pace

[Purveyor]

by Nafeesa SyeedRinat Gaynullin
8:41 AM EDT
April 30, 2015

Saudi Arabia is burning through foreign reserves at a record pace as the largesse of the new king and regional turmoil ratchet up pressure on public finances already hurt by the oil price slump.

The kingdom spent $36 billion of the central bank’s net foreign assets -- about 5 percent of the total -- in February and March, the biggest two-month drop on record, data released this week show. The fall was in part due to King Salman’s order to give government employees and pensioners a two-month bonus after he ascended to the throne of the world’s biggest oil exporter in January.



The early months of Salman’s rule also saw a sharpening of the country’s rivalry with Iran -- most strikingly over the Saudi-led air offensive in Yemen -- and mounting security threats at home, challenges that had already led to a surge in military spending in 2014. The 48 percent drop in oil prices last year has prompted the government to use reserves and borrow from domestic banks to maintain spending on wages and investments.

“This is going to be an exceptional year in terms of the drop in reserves,” Monica Malik, chief economist at Abu Dhabi Commercial Bank PSJC, said in an interview in Dubai on Thursday. “Even if oil stabilizes between $70 to $80 a barrel next year, there has to be some rationalization of spending objectives to limit a further deterioration in the fiscal position.”

Oil Recovery

The task of balancing Saudi Arabia’s economic and regional policies is increasingly falling to a new generation of princes, including the king’s son, Prince Mohammed Bin Salman. The prince, who was made second-in-line to the throne on Wednesday, heads a newly-created economic council and, as defense minister, is instrumental in the bombing campaign against Houthi rebels and their allies in Yemen.

more...

http://www.bloomberg.com/news/articles/2015-04-30/oil-plunge-royal-handouts-trigger-record-drop-in-saudi-reserves

[Gothmog]

1. Oil prices have been firming up due to the fact that the Saudi govt. cannot continue this burn rate

The Saudi govt. can absorb these losses for a while but not forever. The war in Yemen is going to be expensive and oil prices have probably seen their bottom

[Ichingcarpenter]

2. i say the kingdom will fall in ten years

or less........

[doxyluv13]

3. Monarchy looking shaky, but I'd be more worried if the new King wasn't paying.

Saudi Arabia is still very Tribal in some ways and this kind of gift-giving is part of it.