Saudi sells assets to cover budget shortfalls

01/06/2009 00:00 AST

Top world oil exporter Saudi Arabia keeps diverse foreign exchange reserves and is drawing on fixed foreign assets to help cover budget shortfalls in the short to medium term, its finance minister said.

Ibrahim al-Assaf also said Saudi Arabia, a G20 member, hopes to gain more influence in the global financial system as it builds oil output capacity despite the global recession and amid possible revisions of International Monetary Fund quotas.

Saudi Arabias support of its dollar peg does not mean that its foreign exchange reserves are kept in dollars, but rather they broadly reflect trends in the kingdoms foreign trade and needs, al-Assaf told news agency Reuters in an interview on Saturday.

"We do diversify the reserves," Assaf said. "It is not necessarily that because we peg our currency to the dollar that we are keeping all our reserves in the dollar. That is not the case."

At the end of April, the Saudi Arabian Monetary Agency (SAMA), the central bank, held 126.45 billion riyals ($33.60 billion) in foreign exchange and gold reserves, up about 23 percent from a year earlier.

Almost a third of the kingdoms imports are from Western Europe, about 30 percent from Asia and 14 percent from North America, according to 2007 data.

Saudi Arabia, the largest Arab economy, accumulated large surpluses as crude oil prices surged between 2002 and the middle of last year. Foreign assets of SAMA, the central bank, stood at 1.5 trillion riyals ($400 billion) at the end of April - an almost seven-fold jump from 2003 levels.

The kingdom is now dipping into those surpluses as OPEC output cuts and lower oil prices compel it to pursue deficit spending to uphold a pledge to invest $400 billion in five years developing infrastructure in the country of 25 million people.

"We have a shortfall in the first five months of the year. Our first line of defence is to withdraw from our surpluses with the central bank," Assaf said.

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