Saudi Arabia’s official reserves surged by 6% year-on-year in July, reaching SAR1.697 trillion ($452 billion), according to data released by the Saudi Central Bank (SAMA). This marks a significant increase from SAR1.600 trillion ($426 billion) in July 2022.
Foreign Investments and Currency Holdings Drive Growth
A 7% rise in foreign financial investments, reaching SAR1.021 trillion ($272 billion) compared to SAR952.29 billion ($253.7 billion) the previous year, primarily drove the growth in reserves. International currency holdings, which include currency and deposits abroad as well as investments in foreign securities, accounted for 94.53% of the total reserves. This category saw a 6.54% increase, totaling SAR1.61 trillion in July.
Decline in IMF Reserves and Special Drawing Rights
Despite the overall growth, some components of Saudi Arabia’s reserves saw a decline. The reserve position with the International Monetary Fund (IMF) fell by 8%, totaling SAR13.2 billion ($3.5 billion). Special Drawing Rights (SDRs), which make up 4.6% of the total reserves, decreased by 0.44% to SAR78.03 billion.
SDRs, created by the IMF to supplement member countries’ official reserves, derive their value from a basket of major currencies, including the US dollar, euro, Chinese yuan, Japanese yen, and British pound sterling. Governments can exchange these for freely usable currencies when needed, providing additional liquidity and stabilizing exchange rates.
Strong Reserve Coverage and Economic Stability
Saudi Arabia boasts one of the highest reserve coverage ratios among Fitch-rated sovereigns, standing at 16.5 months of current external payments. This highlights the country’s strong capacity to meet its external financial obligations and underscores its economic stability and prudent management of foreign exchange reserves.
SAMA, which has been managing the country’s foreign exchange reserves since 1952, has evolved its management strategies over the decades. The bank has developed internal models to validate reserve adequacy and assess reserve requirements, incorporating global practices and specific macroeconomic factors relevant to Saudi Arabia. These models are regularly back-tested to ensure their reliability.
In summary, Saudi Arabia’s reserves continue to demonstrate strength, driven by robust foreign investments and careful management by SAMA, despite some declines in IMF-related reserves.
