Riyadh risks running into a budget deficit as its oil revenue falls due to previous output slashes.
Saudi Arabia’s foreign reserves have fallen to $407 billion, their lowest in over a decade, as July’s central bank reported a $16 billion drop in currency assets.
This comes after an increase in net foreign reserves for two months in a row during May and June. But the latest numbers revealed that these figures saw their sharpest decline since the pandemic – which resulted in negative oil demand – and hit their lowest volume since 2009.
Riyadh also slashed its oil output in the previous months, as part of the OPEC+ framework, leading to declining returns from crude sales. Oil revenue brought in nearly $326 billion in 2022, which helped the kingdom to recover from years of budget deficit. However, Saudi Arabia now faces the risk of diving into a negative budget again.
“The net foreign asset position should improve in September, especially when the first performance-linked dividend distribution” arrives from state-owned oil giant Aramco, said Monica Malik, chief economist at Abu Dhabi Commercial Bank PJSC.
Aramco reported earlier a substantial drop in its net income for the first half of 2023. According to its financial report, the company recorded a nearly 30% decrease in its net income, amounting to $61.961 billion, as compared to the same period in the previous year.
“The decrease was primarily a result of lower crude oil prices and weakening refining and chemicals margins. This was partially offset by a decrease in production royalties, largely due to lower average effective royalty rate and lower crude oil prices, and higher finance and other income,” the report read.
In recent years, the oil-rich country has been recalibrating its investment approach, transitioning from the practice of piling up its foreign assets within the central bank. Instead, its investment strategy has pivoted towards pouring massive funds into the Public Investment Fund and the National Development Fund, amounting to hundreds of billions of dollars.