Saudi Central Bank governor explains the decline in foreign exchange reserves

The Governor of the Saudi Central Bank, Fahd Al-Mubarak, said that the recent decline in foreign exchange reserves is due to the time gap between import payments and export income.

The central bank’s net foreign assets, a measure of the kingdom’s ability to peg its currency to the dollar, fell US$8bn from a month ago to US$436bn in April, recording the lowest level in more than ten years. Then, it returned to decline in May, according to the latest central bank data, to about US$433bn.

“The decline in reserves over the last two months is primarily attributable to funding the recovery in demand for pandemic-affected imports. While oil revenue from taxes and distributions progresses or lags, the quantity of central bank reserves fluctuates,” Al-Mubarak told Reuters. 

Given the recent rise in oil prices, the drop looked unexpected, and some analysts believe it could be linked to transfers to the sovereign wealth fund. Last year, the Public Investment Fund got US$40bn in reserves to help fund investments.

The governor said to Reuters: “The recovery of import activities, which recorded a low level in May 2020, was preceded by a recovery in the value of exports. These changes are expected in light of the exceptional economic repercussions over the past 18 months, with the return of economic conditions close to normal.”