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Saudi Arabia: Central Bank Official on Changes in Reserves, Inflation in Asset Values | ASHARQ AL-AWSAT English Archive 2005 -2017
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Saudi Arabia: Central Bank Official on Changes in Reserves, Inflation in Asset Values

Saudi Arabia: Central Bank Official on Changes in Reserves, Inflation in Asset Values

Saudi Arabia: Central Bank Official on Changes in Reserves, Inflation in Asset Values

London, Asharq Al-Awsat- Deputy Governor of the Saudi Arabia Monetary Agency (the Central Bank) Dr Muhammad al-Jasir has stressed to Asharq al-Awsat that the Kingdom’s foreign currency reserves are distributed over a number of components, and are not dependent on a single one. He pointed out that these components were changing according to the situation in the market.

In a telephone interview, Al-Jasir told Asharq al-Awsat “There are no fixed components in the Saudi monetary reserves, and the Kingdom’s investments in this respect tend to focus on the components that have good return, are safe, and are easy to liquidate at any time in which there is a need for this.”

“In its management of its reserves, Saudi Arabia always follows a professional way that secures the provision of minimum risks. These main criteria adopted by the Kingdom require diversification” Al-Jasir added.

Al-Jasir rejected that there was any change in the Saudi policy of managing its monetary reserves. Standard & Poor’s Credit Rating Services estimated that these reserves would exceed 220 billion dollars by the end of 2006. This amount is enough to cover the payments required by the current dealings, including the private transfers, for about 23 months.

It is noteworthy that a number of governors of Gulf central banks announced previously that there was a possibility of increasing the percentage of euro in their baskets of reserve currencies. The governor of Qatar Central Bank announced that he might keep up to 40 percent of the bank’s reserve currencies in euros. Sheikh Salim Abdulaziz al-Sabah, governor of the Kuwaiti Central Bank, announced in the middle of last week that the euro represented a large percentage of the bank’s reserves, and that they were studying whether the euro was getting more attractive than the dollar. In his turn, Sultan al-Suaydi, governor of the UAE Central Bank, said that the bank decided to postpone the decision on whether to transfer 10 percent of its foreign currency reserves from dollars to euros until next month. However, the governors of the Bahrain and Oman Central Banks said in simultaneous statements that they probably would keep the larger part of their foreign currency reserves in dollars. The Oman Central Bank keeps approximately 70 percent of its reserves in dollars, and the rest in other currencies.

In a question to the deputy governor of the Saudi Central Bank about the move away from gold as a principal component of the reserves to a basket of currencies, Al-Jasir explained: Gold is a decreasing component in the reserves of all central banks in the world. Many of these banks have started to transfer to assets more useful than the yellow metal. You will find that the basket of reserves is diversified, and that it contains currencies, government bonds, and gold, which is the least of its components.

With regard to his vision of the Saudi economy during the upcoming five years, Al-Jasir revealed that he was very optimistic about the economy and its future horizons and development. He linked his optimism about the domestic economy to the prosperity and growth witnessed by the world economy. The United States, Canada, the countries of South America, and the Middle East are growing; after 16 years of deflation, the Japanese economy is getting out of this state; moreover, China and India have become the heart of world economy because of their huge population and high consumption.

Here, Al-Jasir pointed out that all these world economies would need oil and petrochemical products, which were among the most important exports of the Kingdom, in addition to the dynamism of the Saudi economy established as a result of the balanced economic policies adopted by the Supreme Economic Council under the leadership of Custodian of the Two Holy Mosques King Abdullah Bin-Abdulaziz.

In his statement to Asharq al-Awsat, the deputy governor of the Saudi Arabian Monetary Agency touched upon the results of the first quarter of the current year, 2006. He emphasized that these results were a continuation of what was achieved in 2005, even better.

With regard to the inflation of the value of the real assets, which could cause problems for the Saudi economy, Al-Jasir explained: The economic analysts should pay attention to the inflation in the value of the assets, because this inflation reflects great optimism about the economy and about the expectations of the growth of the companies, and hence this inflation could be justified. However, Al-Jasir supplemented what he said by adding: There are assets that are positively influenced by the other assets witnessing growth; here lies the challenge that faces any economy, because the value of these assets might rise above the justified limits, and hence might reach levels above which it can go no higher, and the possibilities of corrections would increase. Al-Jasir added: The most effective way of dealing with such a situation is to leave it to the market mechanisms, because the investment awareness has increased and grown to a degree that might limit the fluctuations in the values of the assets.

Al-Jasir was apprehensive about an unjustified inflation in the value of the assets, and he expressed concern about this. However he said that the increase in transparency and in offer and demand might ease the effects of this, and restore the assets to their real levels. He pointed out that this was not happening only in the Saudi economy, but it happened in all economies, and gave as examples what was witnessed in the US and Japanese markets in the past decades.

With regard to the new credit rating obtained by Saudi Arabia from Standard & Poor’s Credit Rating Services, which granted Saudi Arabia an A+ rating to replace the previous A rating, Al-Jasir, who presided over the team that negotiated the Saudi credit rating, explained that this rating indicated that the economy was moving upward. He pointed out that the team answered the queries of the international organization, and presented the Saudi economic policies to be implemented on the ground, despite the Saudi reservations during the past years about the implementation of these policies.

Al-Jasir expected that Standard & Poor’s would raise the Saudi economic rating in the future to AA- replacing the current A+ rate. He pointed out that the revision of the monetary policies and their implementation was taking place annually.

It is noteworthy that Saudi Arabia has obtained high ratings from the most prominent international credit rating agencies, including Finch & Moody’s in addition to Standard & Poor’s. This gives the foreign investor extensive information about the strength of the Saudi economy, and reflects the credibility and strength of the economy, and the reputation of the Kingdom as a country that attracts investment, and enjoys monetary, political, and economic stability and strength. Furthermore, this makes it easier for the Saudi companies to attract investments, and obtain domestic and foreign financing at smaller costs.

Here, Al-Jasir revealed that there was more than one factor considered in the assessment process including: the ability of the state to fulfill its commitments to the economic policies, the encouragement of investments, the good management of funds, the balance between expenditure and revenue, the monetary policies, the development of the money market, the new investments, and the confidence of businessmen in the economy. Al-Jasir continued by saying that all these criteria gave the international credit rating institutions confidence that the Saudi economy was progressing in a balanced way along the right path.

The Saudi membership of the World Trade Organization, the Bank for International Settlement, the World Bank, the International Monetary Fund, and the Islamic Bank, in addition to these credit ratings are indicators that the economic policies are firm, a fact the helps in attracting investments, and bestowing some kind of reassurance for the investors, be they domestic or foreign.