Saudi Arabia: Sukuk inflow dwarfed by outflows

Net foreign assets decline further in April

SAMA’s net foreign assets declined by -USD 8.5bn in April on the back of a decline in holdings of foreign securities.  The cumulative decline in NFAs since the start of the year was –USD 35.7bn, marginally less than the -USD 36.7bn fall in Jan-April 2016.  However, there are two things to bear in mind when making this y/y comparison: 

1. The oil price averaged USD 54.5/b in Jan-April 2017, nearly 50% higher than the same period last year which should have yielded a substantial boost to export revenues (even if we factor in lower crude production on the back of the OPEC agreement, export volumes have remained broadly unchanged on average this year).
2. Saudi Arabia raised USD 9bn through a sukuk issuance in April.  Last year proceeds from a syndicated loan was reflected in NFAs in May 2016, whereas there appears to be no similar impact from the recent sukuk proceeds.

This suggests that there remains a significant deficit in the balance of payments of Saudi Arabia, which is not due to declining oil export revenues.  Some of the decline may have been due to funds transferred by the Public Investment Fund (PIF) abroad, a sharp rise in imports of goods and services, increased private sector transfers abroad or a combination of all of these.    

SAMA’s balance sheet continues to shrink

SAMA’s balance sheet has contracted by SAR 120bn (USD 32bn) since the start of this year.  The asset side shows that most of this has been due to the decline in foreign assets (investment in foreign securities and deposits with banks abroad have fallen USD 23.3bn and USD 11.6bn respectively).  This was partially offset by a USD4bn rise in ‘miscellaneous other assets’. 

The liabilities side of the balance sheet shows that in the year-to-April, the government’s deposits have declined by more than USD 13bn, while government institutions’ deposits (which would include the PIF) at the central bank have fallen by an additional USD 7.4bn.      In addition, the stock of SAMA bills and repos has declined by nearly USD 7bn year-to-April, effectively putting this liquidity back into the domestic banking system.  ‘Other liabilities’ have also declined by just over USD 4bn in the first four months of this year.  

Private sector credit contracts y/y

Private sector credit declined -0.3% y/y in April, despite rising 0.2% m/m.  Private sector credit growth slowed sharply from Q4 2016, and turned negative in March 2017.  Public sector credit growth has also slowed sharply, reaching 30.5% y/y in April from 82.0% y/y in December 2016.  This has partly been due to the government relying on external debt financing rather than issuing domestic bonds to banks.

Broad money supply increased in March and April but growth remains weak at 0.7% y/y in April.  FX and longer term riyal deposits declined -3.0% y/y in April but M1 (cash in circulation and demand deposits) has returned to growth after contracting for most of 2016.  

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