Saudi Arabia Achieves Surge in Foreign Reserves

Saudi Arabia Achieves Surge in Foreign Reserves Thanks to Aramco Dividends, Saudi Arabia's foreign reserves have reached their highest level in 18 months, bolstered by substantial dividends from Aramco, the world's largest oil producer.

Increase in Net Foreign Assets The Saudi Central Bank, known as SAMA, reported that net foreign assets rose by 5% to $445 billion (1.67 trillion riyals) by the end of May, the highest level since November 2022. This increase was driven by Aramco's payment of over $25 billion in dividends to the government during the same month, compared to $18 billion in the previous year.

Shift in Investment Strategy Saudi Arabia has adopted a new investment strategy in recent years, reducing the proportion of foreign reserves held as low-yield liquid assets such as U.S. Treasury bonds. Under the leadership of Crown Prince Mohammed bin Salman, the kingdom has sought higher returns and taken on more investment risks both internationally and domestically, expanding the size of the Public Investment Fund (PIF) to around $1 trillion, reflecting this strategic shift.

Peak Reserves and Challenges SAMA's reserves peaked at nearly $740 billion in mid-2014, just before a major oil price collapse. Aramco continues to increase shareholder dividends using cash accumulated during the period of high oil prices in 2022. In May, the company announced plans to distribute $124 billion in dividends to shareholders this year, with the vast majority of this amount going to the central government, which owns 81.5% of Aramco's shares even after the recent secondary offering and the transfer of a 16% stake to the Public Investment Fund.

Importance of Reserves for Stability These reserves play a crucial role in maintaining confidence in the peg of the riyal to the dollar. Saudi officials have stated they will use the oil revenue boom in 2022 to rebuild foreign assets depleted when crude prices fell during the COVID-19 pandemic.

With significant dividends from Aramco, Saudi Arabia has been able to bolster its foreign reserves, reflecting the success of its new investment strategy and its benefit from improved oil prices.