Saudi withdraws tens of billions from global asset managers

Saudi Arabia has withdrawn as much as US$70 billion from global asset managers as OPEC’s largest oil producer seeks to plug its budget deficit after crude slumped, according to financial services market intelligence company Insight Discovery. In other words, Saudi Arabia has less money coming (from oil sales) but its spending needs remain the same.

Financial Times’ Simeon Kerr reports that the Saudi Arabian Monetary Agency, the Kingdom’s central bank, has pulled an estimated and billion from investment companies over the past six months.

The speed in the decline of Saudi’s foreign reserves slowed in July after the government began issuing domestic debt to cover part of its budget deficit, but this month saw global asset managers hit by a series of redemptions, which followed on an initial wave of withdrawals earlier this year.

However, another fund manager said: “We are not that surprised, SAMA has been on high risk for a while and we were prepared for this”.

The Saudi Arabia reduces exterior investment. That’s on top of plans to set up a US$10 billion investment venture with China’s Citic Group.

With spending forecast to reach 1,082 billion riyals (more than $270 billion) this year, Saudi Arabia’s fiscal deficit could rise to around $140 billion or 20% of GDP, according to the International Monetary Fund.

Even at the current rate of depletion, foreign-exchange reserves should last for at least another eight years, Tuvey said. “Growing demand for insurance in the near term, combined with regulatory encouragement of highly prudential “actuarial pricing” after the price war of 2012-2013, means that Saudi Arabia’s insurers are showing few signs of being affected by the fall in oil prices”. The kingdom’s finances are depleted by continued subsidies, hand-outs to public sector workers and the Yemen conflict.