Saudi Arabia is showing its less endowed OPEC peers what it means to be an oil producing country by moving a staggering $40bn to its sovereign wealth Fund to finance its overseas spending spree as the sovereign wealth fund seeks to take advantage of the coronavirus pandemic by hunting for assets at knockdown prices.
Mohammed al-Jadaan, finance minister, said the funds were transferred from the Saudi Arabian Monetary Authority’s foreign reserves “exceptionally” during March and April. Fellow OPEC country Nigeria can only count $1.5bn in her sovereign wealth fund because of decades of failing to save.
He told the Financial Times that the transfer would provide dollar liquidity to the $325bn public investment fund, PIF to allow it to continue investing overseas, both “tactically” and for the “long term”.
“They are obviously looking for the right time and the right market,” Mr Jadaan said in an interview. “They have finished part of their investment and they may be waiting for opportunities to come in the weeks and months to come.”
The PIF, which is chaired by Crown Prince Mohammed bin Salman, has already spent at least $8bn investing in US and European blue-chip companies, including BP, Royal Dutch Shell, Total, Boeing, Citigroup, Disney and Facebook, in the first three months of the year.
It has also led an investor group that has agreed to buy Newcastle United, the English football club, for £300m.
The flurry of investment activity has taken place as Saudi Arabia faces its worst economic crisis in decades with the kingdom buffeted by the twin shocks of Covid-19 and the plunge in oil prices.
The government has been forced to increase borrowing and introduce tough austerity measures, including tripling VAT to 15 per cent and suspending cost of living allowances for the civil service, which employs most Saudi workers, as well as slashing state spending and delaying projects.
It has also had to tap its foreign reserves, which fell by about $24bn in March to about $470bn — the largest monthly decline on record. The budget deficit is expected to balloon into double digits this year.
Mr Jadaan said in March that Riyadh would increase borrowing rather than use its reserves. But as the scale of the crisis became clear, he said in April that the government would need to further increase its borrowing by $26bn and could draw down up to $32bn of its reserves.
While the kingdom has substantial foreign reserves, economists say that Riyadh has to keep them above $300bn to stave off speculation on the riyal’s peg to the dollar — which the government insists it will maintain.
Mr Jadaan said Riyadh had conducted a lot of stress testing and that the authorities believe the foreign reserves “level is very high compared to what we think we need to maintain the peg and support the economy”.
“The money is available and it’s not going away — it is being invested and the returns will be available to us at any time,” he said.
“The PIF has significant liquidity . . . and there are significant opportunities in the international markets . . . that call for some tactical investments by the PIF, which will yield, and have yielded, some very good returns.”
Prince Mohammed has identified the PIF, which has the goal of becoming the world’s largest sovereign wealth fund, as being the main vehicle to drive his bold plans to diversify the kingdom’s oil-dependent economy and modernise the conservative nation.
