Unprecedented decline in the Kingdom’s reserves

The Kingdom of Saudi Arabia continues to receive successive shocks due to the failure of the economic policies and decisions pursued by Crown Prince Mohammed bin Salman, while observers assure that the Kingdom is moving in the wrong direction.

The Kingdom’s reserves collapsed due to the economic repercussions of the Coronavirus pandemic, and the suspension of activities and works, and the increase in public spending to counter the spread of the virus.

Saudi Arabia is one of the most affected countries in the Gulf because of the decline in the general reserve since last March, after the outbreak of Coronavirus.

There is a lot of confusion prevailing in the Saudi scene because of the blundering financial policies that have exhausted the economy and affected the lives of the Saudi citizens.

This comes in light of the large decline in the general reserve due to the sharp decline in financial revenues as a result of the unprecedented collapse in oil prices and the interruption of business and religious tourism such as Umrah and Hajj, as well as the continued military intervention in Yemen.

Since last March, Saudi Arabia lost about 86 billion dollars of its foreign reserve assets, which had reached 529 billion dollars before the Coronavirus crisis. The total reserve in March decreased by about 25 billion dollars.

The Kingdom lost about $40 billion in foreign reserves to finance the Sovereign Wealth Fund Investment Commission, which is chaired by Saudi Crown Prince Mohammed bin Salman.

In the context, Saad Al-Shehri, director of the research unit at the Arab Gulf Center for Economic Studies, stressed that the Kingdom is in the wrong direction and Saudi reserves should be preserve. He added that withdrawing from reserves to finance the sovereign wealth fund is a risky step, pointing out that the Kingdom is one of the most affected countries economically due to the Coronavirus, not only at the Gulf level but also at the international level.

Al-Shehri expected that the Saudi economy’s losses will continue to bleed and the reserve assets will decline due to the failure of the response measures.

He stressed that the crisis of declining oil prices and the pandemic has caused tremendous shock in the Kingdom’s budget, which will go towards radical austerity measures and borrowing from global financial markets.

At the same time, he indicated that the Saudi authorities’ delay in approving economic reforms would put pressure on its financial position, as well as continue to withdraw from the Kingdom’s reserve assets.

Oil Price website said that the price war in the oil market between Saudi Arabia and Russia caused Riyadh to lose $12 billion in oil export revenues in April alone.

The site added that the data of the Saudi Statistics Authority showed that the revenues of Saudi oil exports decreased by more than 65%, compared to April of last year, with Riyadh increasing its production in an unprecedented way.

Losing 23 billion dollars from January to the end of April, Saudi Arabia’s revenues from oil exports have been declining since the beginning of this year.

World oil expert Dr. Mamdouh Salameh said that Saudi Arabia had not profit from the price war against Russia last April.

He added that the Saudi decision was hasty and emotional, and pointed out that Riyadh’s decision to dump markets came at a time when these markets were overwhelmed by more than 30 million barrels, due to the decline in global demand due to the Coronavirus crisis and under pressure of oversupply by about 1.8 billion barrels.

Mamdouh Salameh pointed out that while Russia needed a price of $40 to equal its budget, Saudi Arabia needed between $84 to $91 to achieve a balance of its budget.

To balance its declining revenue, Saudi Arabia has resorted to cutting spending and imposing taxes to restore balance.