Saudi Arabia affirms reserves depth, dollar peg

Saudi Arabia has adequate foreign exchange (forex) reserves and will maintain its 30-year currency peg with the US dollar, the country's central bank said today.

The Saudi Arabian Monetary Authority (Sama) statement came a day after ratings agency Moody's downgraded its outlook for the Saudi economy to "negative" from "stable" and said it had concerns about Riyadh's ability to offset the revenue losses arising from lower oil prices.

Saudi Arabia's budget for 2020 forecast oil revenues of $136.8bn, or just over 61pc of overall income. But that was based on an estimated average of $65/bl for Brent crude, more than double current levels. The finance ministry said last week that oil revenues fell by 24pc year on year in the first quarter, reflecting sharply lower oil prices caused by a drastic drop in demand related to the Covid-19 pandemic.

Sama said Saudi Arabia's forex reserves cover 43 months and "remain sufficient to meet all demand of the national economy for foreign exchange." It said the Saudi riyal will remain pegged at 3.75 to the US dollar, "a strategic choice that has supported economic growth in Saudi Arabia for over three decades."

At the weekend, Saudi finance minister Mohammed al-Jadaan said the government plans to rein in spending to deal with the economic effects of the Covid-19 pandemic "might be painful." In an interview broadcast by the semi-official Alarabiya news channel, al-Jadaan said that government revenues will continue to fall until the end of the year. He said that the government had released a package of measures worth SR180bn, equivalent to around 8pc of non-oil gross domestic product (GDP), to support the economy.

Saudi Arabia's room to manoeuvre is limited by its commitments under the new Opec+ agreement. It has agreed to reduce production by 2.5mn b/d in May and June, and then by just over 2mn b/d for the remainder of the year, from a baseline of 11mn b/d. As de facto leader of Opec, Saudi Arabia will have to be seen to be compliant.

By Samira Kawar