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Saudi Arabia Guarantees Bank Loans and Liquidity
RIYADH — Saudi Arabia’s highest economic body said on Thursday the central bank will guarantee liquidity to Saudi banks as well as bank deposits to survive the world finance crisis whose impact would be “limited.”
“The Saudi Arabian Monetary Agency (SAMA) will monitor the restrictions on liquidity to banks to reduce reserve requirements and costs of financing, if necessary,” a statement on the state news agency SPA said. SAMA is the Saudi central bank.
“The government will continue to ensure the health of Saudi banks and banks deposits,” it said, citing a decision by the Supreme Economic Council which convened under the chairmanship of King Abdullah.
“The process of development continues despite the global nature of the crisis. Its effect on the Saudi economy will be limited because of the local economic boom the kingdom is witnessing and the soundness of the financial position of Saudi banks,” the statement said, citing the king’s comments to the committee, which included senior Saudi princes.
The statement cited major investments in the economy, in reference to massive development projects in industry and infrastructure which high oil prices have allowed the kingdom, the world’s largest oil exporter, to implement.
Oil prices have fallen in recent weeks as the world financial crisis kicked in. On Thursday, U.S. crude fell below $70 and analysts assume Riyadh will need an oil price of around $55-62 a barrel to balance its budget into 2009.
Saudi Arabia’s economic profile has witnessed a stunning turnaround in the last decade as oil prices shot up from around $10 a barrel to nearly $150 this year.
The kingdom ran a record budget surplus of $70.6 billion in 2006 and $47.6 billion in 2007 and has been using the money to pay back debt. The 2008 budget sees expenditure of 410 billion riyals ($109 billion) and assumes an oil price of $50 a barrel.
The Organisation of the Petroleum Exporting Countries said on Thursday it had brought forward an emergency meeting to discuss the impact of global recession on oil markets to Friday next week from November as pressure mounts to cut supply.
Saudi Arabia has already begun to pare back production in line with expectations of lower demand.
The government has said its budget surplus would shrink to $47.6 billion in 2007 and economic growth slow to 3.5 per cent after the world’s largest oil exporter cut output to meet targets of Opec.
On Sunday SAMA cut its key benchmark lending rate for the first time in almost two years and lowered bank reserve requirements, saying inflationary pressures had eased. Price rises in recent months hit their highest in 30 years.
SAMA officials also said government investments abroad are safe and that liquidity in the wider economy will not dry up.
But Thursday’s statement was the first time the government said directly it would ensure bank deposits.
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