Saudi Arabia's foreign assets edged down slightly in April for the first time in eight months over spending to stimulate economy, official statistics revealed. While investments in securities grew by around 1.3 percent, deposits with banks abroad by the Saudi Arabian Monetary Agency (SAMA), the Kingdom's central bank, dipped by nearly SR24 billion at the end of April, compared to the previous month, it said in its April bulletin. In its latest note, Banque Saudi Fransi (BSF) said the Saudi government continues to take the role as primary financier for strategic projects in the country as private sector firms linger on the sidelines. The note prepared by its research team headed by chief economist Dr. John Sfakianakis, noted that Saudi central bank's foreign assets declined month-on-month for the first time since September, as SAMA drew down deposits in banks abroad by nearly 7.5 percent, or SR23. billion over the month. High oil prices, which averaged above $80 a barrel in March and April, have enabled SAMA to quickly replenish its net foreign asset holdings to SR1.55 trillion, the highest level since February 2009, although still off a peak of SR1.66 trillion in November of 2008, the figures showed. From around SR1.61 trillion at the end of March, SAMA's assets slipped to nearly SR1.60 trillion at the end of April. A breakdown showed investment in foreign securities swelled to around SR1.14 trillion from SR1.26 trillion, while bank deposits shrank to nearly SR294.8 billion from about SR318.7 billion in the same period. BSF said expansionary spending should, in theory, boost confidence of private sector investors in the economy and catalyze bank credit. But it added that despite all of the ‘ingredients for a perfect recipe' of bank credit revival appearing to be in place, lending continues to be listless apart from a pick up in April. It said two key reasons for the slow credit are that banks are implementing tighter conditions on relationship lending and private-sector firms are not seeking loans as they focus instead on reducing their debt positions. “These two reasons tell part of the story, but they omit two additional crucial components outside of banks' control. “First, state intervention with interest-free financing, while advancing official development ambitions, fails to persuade banks to jumpstart lending... The state is leaving little room for banks to partake in strategic projects in sectors such as utilities and transport,” BSF said. “It may be prudent to reassess the state's business model to strike better balances between government involvement and private sector participation on the one hand, and interest free lending and more costly bank credit on the other. “In the medium term, the economic costs of failing to involve banks will outweigh any savings in financing,” it said. “The government should avoid creating a scenario where it is forced to carry the burden for economic development by crowding out most private participants in favor of a select few,” BSF said. It also said private sector credit growth looks to be taking a modest yet healthy track toward recovery.
