Saudi FX reserves to reach $518 bln by end-2018: MUFG

Saudi Arabia's foreign reserves are expected to rise by 3 to 4 percent to $512 billion to $518 billion by the end of 2018 compared to $496.4 billion last year, based on the Brent crude average forecast of $70.3 a barrel this year, MUFG Bank said in a report released on Tuesday.

The Kingdom's foreign reserves fell by $5.1 billion month-on-month in July to $501.3 billion.

Foreign reserves were under pressure in July, despite a large current account surplus despite trade surplus reaching $75 billion in H1 2018, the report noted, citing data issued by Saudi Arabian Monetary Authority (SAMA), the Kingdom's central bank.

Separately, the Saudi Ministry of Finance (MoF) numbers suggested that the authorities did not broadly utilize the buffers at SAMA to finance the deficit in H1 2018, as government deposits declined in the same period.

"Importantly, this could be due to transfers to the Public Investment Fund, the Kingdom’s sovereign wealth fund, but this has not been made official by the authorities," the bank said.

With higher oil prices reducing financial pressure with less government borrowing, MUFG estimates that the government financing requirement will almost half to $31.5 billion this year from $61 billion in 2017.

"Saudi Arabia continues to remain well-positioned to withstand its challenging operating environment, noting that the fiscal breakeven price is $87.9 billion this year) and is able to continue financing fiscal deficits and the investment program in line with Vision 2030, thanks to its strong financing capacity accumulated when oil prices were high and rising between 2005-14," it added.

While the report said that privatization "progress has been slow", it stated that "capability and readiness of the government are evident.”

"Whilst the ambition is evident, the biggest challenges will be implementation. We remain optimistic, however, that the reform agenda will boost Saudi Arabia’s potential growth rate as longstanding impediments to investment and productivity are reversed," it added.