Saudi foreign reserves capable of mitigating external shocks: SAMA

Saudi Arabia’s current foreign reserves is capable of softening any external shock and are sufficient for approximately 40 months of imports, the Saudi Arabian Monetary Authority (SAMA) said in its Financial Stability Report 2019. 

The three-month Saudi Arabian Interbank Offer Rate (SAIBOR) rose in 2018, in response to the hike in monetary policy rate. The hike reflected monetary normalization in the United States. 

However, rates are still far below historical averages.

“Even further increases in interest rates during 2019 may only have a limited impact on domestic growth given the limited level of debt in most publicly listed companies,” the central bank said.

The Kingdom’s economic growth is expected to pick up this year, as the medium-term domestic growth outlook has improved.

Oil prices saw a steep decline in Q4 2018 but have rebounded in the initial months of 2019. 

“For the non-oil sector, growth is expected to be stimulated by expansionary fiscal policy, as the budget for 2019 shows a significant increase in capital expenditure by SAR 245 billion,” SAMA said.

On the other hand, the key downside risk for the Saudi economy is the global oil market.

The oil sector accounts for around 45 percent of total gross domestic product (GDP) and for more than 63 percent of government revenue. 

“Overall, the Saudi economy remains quite resilient against contagion from growing uncertainty in the global economy,” the report added. 

High levels of foreign reserves and a low level of public debt mean that there is ample fiscal space to counter an economic downturn. 

For the local banking system, SAMA noted that the sector has made adequate provisions. The provision coverage ratio for the banking system is well above 100 percent. 

Non-performing loans (NPLs) are mainly concentrated in the building and construction, commerce, and manufacturing sectors.