Saudi Foreign Reserves and Money Supply Strengthen in May
Saudi Arabia’s foreign-currency reserves and money supply both rose over the past year through May, according to the latest monthly data from the Saudi Central Bank, pointing to resilient liquidity and credit conditions even as oil prices softened. The central bank’s foreign-currency reserves rose to about 1.73 trillion riyals, an increase of roughly 7 percent from a year earlier, while broad money supply, measured by M3, grew about 8.9 percent over the year to around 3.37 trillion riyals.
Converting the reserve figures at the riyal’s fixed rate of 3.75 to the dollar, a peg held since 1986, puts foreign-currency reserves at about 461 billion dollars and total reserve assets, reported at about 1.83 trillion riyals for the month, at roughly 488 billion dollars, our calculations from the peg. The growth rates imply meaningful absolute gains: a 7 percent rise in reserves points to an increase of about 113 billion riyals over the year, from roughly 1.62 trillion riyals, and an 8.9 percent rise in M3 to about 3.37 trillion riyals implies money supply expanded by roughly 275 billion riyals year on year, from around 3.09 trillion, all our calculations from the stated levels and growth rates.
One relationship is worth drawing out. Total reserve assets of about 1.83 trillion riyals are equivalent to roughly 54 percent of the 3.37 trillion riyal M3 money stock, our calculation, an unusually high ratio of external reserves to broad money that underpins confidence in the riyal’s long-standing peg to the dollar. A currency board would require full backing, and while Saudi Arabia does not run one, holding external reserves worth more than half of the entire broad-money supply gives the central bank a very large buffer to defend the peg through swings in oil revenue and capital flows.
At the same time, the monthly trend is more nuanced than the annual one. The central bank’s net foreign assets edged down to about 1.74 trillion riyals in May from about 1.77 trillion in April, a fall of roughly 30 billion riyals, and system-wide net foreign assets, which net out commercial banks’ foreign liabilities, slipped to about 1.5 trillion riyals from about 1.54 trillion, so the year-on-year strength coexists with a modest month-on-month drawdown. That pattern, reserves up over the year but easing at the margin, is consistent with a period in which oil receipts have softened even as domestic credit continues to expand.
Solid money-supply and credit growth suggest bank funding remains ample to support lending as the kingdom continues to finance its diversification agenda under Vision 2030, while the reserve position provides a large external buffer. The combination of near double-digit M3 growth and a reserves-to-money ratio above 50 percent is the picture of a banking system with room to lend through a period of lower oil prices, which is precisely when domestic credit is most needed to sustain non-oil activity and project spending.
Why it matters: Reserves and money-supply data are a read on the health of a banking system and the strength of a currency regime. For Saudi Arabia, foreign reserves worth more than half of the entire broad-money stock anchor confidence in the dollar peg, while M3 growth near 9 percent indicates that domestic liquidity is supporting private activity and the investment push under the diversification programme. For the wider Gulf, where currencies are similarly pegged to the dollar, ample liquidity and large reserves are important buffers against external rate pressure transmitted through those pegs, and they shape how much room banks have to fund projects while oil revenue is softer.
Outlook: The path of reserves and liquidity will track oil revenue, capital flows and the pace of project spending, with the modest monthly dip in net foreign assets the trend to watch. Continued M3 and credit growth would support the non-oil economy, while a sustained period of lower oil prices is the main variable for the reserve trajectory in the months ahead.
Sources: Saudi Central Bank.
