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Saudi fiscal reserves slide to 4-year low

Oil pulls down most of Gulf, QNB buoys Qatar Business WEDNESDAY, FEBRUARY 3, 2016 Russia leaves door open to OPEC deal as output hits high Page 23 Oil fall, China’s slowdown steered stock market rout Page 25 Oil slips towards $33 as hopes for output cut fade Page 22 Infiniti Q60, QX30 set to make European debut Pages 26 TEHRAN: Iranian stockbrokers monitor share prices at the Tehran Stock Exchange in Tehran yesterday. The Tehran Stock Exchange has rallied to a one year high in the wake of Iran’s landmark nuclear deal with world powers last summer. — AP
Oil pulls down most of Gulf, QNB buoys Qatar Business WEDNESDAY, FEBRUARY 3, 2016 Russia leaves door open to OPEC deal as output hits high Page 23 Oil fall, China’s slowdown steered stock market rout Page 25 Oil slips towards $33 as hopes for output cut fade Page 22 Infiniti Q60, QX30 set to make European debut Pages 26 TEHRAN: Iranian stockbrokers monitor share prices at the Tehran Stock Exchange in Tehran yesterday. The Tehran Stock Exchange has rallied to a one year high in the wake of Iran’s landmark nuclear deal with world powers last summer. — AP

RIYADH: Saudi Arabia’s fiscal reserves dropped to a four-year low last year as the government sought to finance a budget deficit caused by plunging oil revenues, a report said yesterday. The reserves of the world’s largest crude exporter dropped to $611.9 billion at the end of 2015, the lowest level since 2011, down from $732 billion a year before, the Saudi Jadwa Investment said in an economic report. Jadwa said it expected reserves to fall to around $500 billion by the end of 2016, after oil prices fell by three quarters since mid-2014. The kingdom, the second largest crude producer after Russia, posted a record budget deficit of $98 billion last year after oil income dived by 60 percent to just $118 billion. Riyadh also projected an $87 billion deficit for this year but Jadwa forecast the shortfall to be more than $107 billion.

To help finance the budget deficit, the kingdom in December introduced a series of austerity measures raising fuel prices by up to 80 percent and increasing the prices of electricity, water, natural gas and others. Jadwa said it expected inflation to soar this year to 3.9 percent, from 2.2 percent last year, as a result of the price hikes. The kingdom also issued bonds in the domestic market worth $30 billion. The International Monetary Fund last month revised downward Saudi gross domestic product growth to just 1.2 percent this year, the lowest since 2009. Its GDP grew 3.4 percent in 2015. Saudi Arabia is currently pumping 10.2 million barrels of crude per day.

Omani rial plunges
Oman remains committed to the peg of its rial currency against the US dollar, the head of the central bank said yesterday, after the rial dropped to its lowest level in the forwards market for a decade. Low oil prices are hurting Oman’s state finances and depleting its foreign reserves, fuelling speculation among some foreign bankers that it may eventually have to abandon the peg of 0.3849 rial to the dollar, set in 1986.

One-year dollar/rial forwards – deals that will be settled in 12 months’ time – jumped on Monday as high as 1,500 points, their highest since 2006.

That implied the rial would depreciate about 4 percent from its peg. Forwards came down slightly to 1,400 points by Tuesday afternoon, but currency dealers said the market’s move this week showed some bankers were identifying the Omani rial as the most vulnerable currency in the six-nation Gulf Cooperation Council of wealthy oil exporters. “The currency pegs in Oman and Bahrain are not robust to severe terms-of-trade shocks, and sustainability issues may become increasingly more pressing over the next 12-24 months if oil prices stay at below $60-$70 per barrel,” Goldman Sachs said in a research note in late January. A dealer with a foreign bank in the Gulf, speaking on condition of anonymity because the matter is sensitive, said: “Oman is the weakest link in the GCC and its peg may come under pressure as early as end-2016.” Bahrain and Oman lack the deep financial resources of their neighbors and while Bahrain is widely believed to be able to count on financial support from Saudi Arabia, to which it is closely allied politically, the markets believe Oman may not have such automatic backing.

That has left traders focusing on the damage which cheap oil is doing to Oman’s state finances. The government posted an $11.7 billion deficit last year and has forecast another big deficit this year despite spending cuts. The plunge of the Brent oil price to near $30 a barrel, from around $100 18 months ago, has created some unease about all the GCC currencies. But the United Arab Emirates, Qatar and Kuwait have hundreds of billions of dollars of overseas assets and small populations, so the markets think they are safe for now. Saudi Arabia’s riyal has come under pressure in the forwards market but that pressure has eased since Riyadh warned banks not to speculate against its currency and threatened to mobilize its huge reserves against speculators.

Central bank executive president Hamood Sangour Al-Zadjali told Reuters on Tuesday that Oman had no intention of altering its currency peg. “Nothing changed. We are committed to the peg with the USD. The interest rate hasn’t changed,” he said, adding that the rial’s weakness in the forwards market might be partly due to the strength of the US dollar globally. Nevertheless, speculation against the rial may continue unless there is a substantial rebound of oil prices. The Goldman Sachs report estimated the probability of a devaluation in Oman could reach over 80 percent within three years. Keen to boost economic growth, the Omani central bank has so far resisted pressure to raise its official interest rates in line with the U.S. Federal Reserve, which hiked rates by 0.25 percentage point in December. Within hours of the US hike, Saudi Arabia, the UAE, Kuwait and Bahrain raised their rates in what was seen by markets as a signal that they would defend their currency pegs. — Agencies

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