Saudi Arabia reserves growth bolsters fiscal strength, driving non-oil sector expansion under Vision 2030

Saudi Arabia has seen a notable surge in its official reserves, reaching SR1.71 trillion ($457 billion) by the end of September 2024. This represents a 4 per cent increase compared to the previous year, according to data released by the Saudi Central Bank, commonly known as SAMA. The growth in reserves highlights the Kingdom’s continued efforts to fortify its economic stability amidst ongoing reforms under Vision 2030.

The recently disclosed figures show that foreign reserves, which include currency deposits and investments in overseas securities, make up the largest portion of Saudi Arabia reserves growth. This category alone accounted for SR1.62 trillion, representing 94.5 per cent of the total reserves. The substantial 4.11 per cent increase in foreign reserves highlights the Kingdom’s strategic focus on diversifying its assets to protect against global economic volatility.

Additionally, Saudi Arabia’s stock of special drawing rights (SDRs) with the International Monetary Fund climbed to SR79.86 billion, a 4.18 per cent rise. This marks the highest level recorded in over two years, making SDRs a critical component, now contributing 4.66 per cent to the nation’s total reserves. SDRs, which are IMF-created assets, derive their value from a composite of five major currencies, including the US dollar and the euro. These assets play a pivotal role in bolstering the financial flexibility of countries by enhancing liquidity and stabilising exchange rates.

However, while most reserve components have seen growth, the IMF reserve position of Saudi Arabia experienced a dip, falling to around SR12.64 billion—a decline of 11.45 per cent. This category reflects the amount that the Kingdom can readily access from the IMF without conditionalities, and the drop signals a potential reallocation towards other strategic reserve assets.

The impressive rise in Saudi Arabia’s reserves is not just a matter of numbers but a reflection of its robust economic strategy. By maintaining a diverse portfolio across currencies and investment geographies, Saudi Arabia has built a resilient buffer against potential financial shocks. This careful management of reserves is instrumental in supporting the Kingdom’s fiscal stability, which is crucial as it continues to expand its economic footprint beyond oil dependency.

Credit rating agency S&P Global recently reaffirmed Saudi Arabia’s credit rating at “A/A-1,” with an upgrade in its outlook to positive, citing the nation’s steady progress in implementing economic reforms. As part of its broader Vision 2030 plan, the Kingdom has adopted an expansionary fiscal policy, prioritising investments in infrastructure and social projects designed to diversify its economy.

Despite these ambitious spending plans leading to temporary budget deficits, Saudi Arabia remains on solid fiscal ground. S&P Global projects that the Kingdom’s net assets will stay above 40 per cent of GDP through 2027, a testament to its prudent financial management and reserve accumulation. This financial cushion gives Saudi Arabia the leeway to continue funding transformative initiatives while safeguarding against unforeseen economic disruptions.

In alignment with Vision 2030, the Public Investment Fund (PIF) has taken a central role in driving non-oil sector growth. From renewable energy investments to advancements in healthcare and technology, the PIF is spearheading projects that aim to establish a diversified economic base. These efforts are essential for creating a more sustainable growth model, reducing the Kingdom’s reliance on oil revenues.

Saudi Arabia’s ability to maintain substantial reserves offers it the flexibility to adjust fiscal policies in response to shifting economic conditions. This adaptability ensures that the nation can continue investing in large-scale infrastructure projects while maintaining a balance between ambitious growth and fiscal discipline.

As the Kingdom moves forward with its reform agenda, experts predict that non-oil sectors will witness substantial growth over the coming years. This, coupled with a strategic focus on innovation and sustainable development, positions Saudi Arabia favourably to attract foreign investment and strengthen its long-term economic outlook.

With a positive trajectory ahead, Saudi Arabia’s strategic reserves not only underpin its economic stability but also provide the financial agility needed to achieve the ambitious targets set forth in Vision 2030. As the Kingdom builds on its achievements, the world will be watching to see how it navigates the complex global economic landscape to realise its transformative goals.