Net foreign assets at the central bank, known as SAMA, dropped monthly by roughly $8 billion to $436 billion in April. Image Credit: SAMA

Dubai: A recent drop to record lows in Saudi Arabia's foreign reserves, a measure of its ability to support its dollar-pegged currency, was partly due to a lag between import payments and export receipts, the Saudi central bank governor told Reuters.

Net foreign assets at the central bank, known as SAMA, dropped monthly by roughly $8 billion to $436 billion in April, their lowest in more than a decade, and dropped further in May, recent central bank data showed, declining to about $433 billion.

"Reductions in reserves over the past couple of months were mainly to finance a rebound in pandemic-hit import demand, while leads-and-lags in oil income (tax and dividends) cause some degree of fluctuation in SAMA's reserves level," said Fahad al-Mubarak, the governor of the central bank.

The declines appeared counterintuitive given the recent rebound in oil prices, and some analysts said they could be linked to transfers to the Saudi sovereign wealth fund, Public Investment Fund, which last year got $40 billion in reserves to fund investments.

"The rebound in import activity, which hit a low figure in May 2020, has preceded that in exports receipts. These shifts are expected given the extraordinary economic impacts over the last 18 months as economic conditions become more normalized," the governor said in a statement to Reuters.

The central bank does not normally disclose the reasons for the change in net foreign assets.

At $433 billion, they are comfortably above what Riyadh would need to protect the peg, but bouts of lower oil prices in the past few years have hit the Saudi riyal in the forwards market as investors bet the kingdom may eventually be pushed into devaluing its currency.

The value of Saudi imports in April amounted to 49.1 billion riyals ($13.09 billion), according to the most recent official trade figures. That is up 17.5% year-on-year and 33% when compared with May last year.

Exports increased annually by 87% in April, with the value of oil exports up 109% year-on-year.

"The relatively limited productive base means that a pick-up in domestic demand due to the easing of COVID-19 restrictions is largely met by imports," said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

"However, the sharp rise in oil price is boosting the exports, which we see outstripping import growth in 2021," she said.