By Sergei Manukov
The Saudi Arabian Ministry of Finance (KSA) sold more than $3 billion worth of US bonds in June. This is their lowest level American public debt, according to the US Treasury - $108.1 billion.
The oil-producing states of the Persian Gulf seem to be losing faith in the US dollar and are increasingly investing in riskier assets. The largest Arab kingdom has been selling US government debt for three months in a row. By the way, the United Arab Emirates (UAE) sold even more US government bonds in the first summer month - almost $4 billion.
The de-dollarization process launched by Russia and China is beginning to bear fruit. The Gulf states, for example, are now looking for assets that can earn more than US government bonds. As for the KSA, its portfolio of US government debt has shrunk by more than 41% over the last 3.5 years. Instead of US bonds, the Saudis are buying shares in companies such as Lucid Group Inc., Uber Technologies Inc. and Newcastle United Football Club.
As of the end of 2022, risk assets accounted for almost 40% of Saudi Arabia's external wealth, according to Bloomberg Economics. This is more than double the figure for 2016, the year when then-KSA Deputy Crown Prince Mohammed bin Salman announced his desire to invest in more than just the oil sector.
“Domesticly, the rise in risky assets can bring losses,” explains economist Ziad Daoud. “In the international arena, the relocation of Saudi wealth could lead to an increase in the interest rates in the United States.”
China is even more energetically getting rid of US government bonds, which sold them in June for $11.3 billion. Beijing now has the smallest amount of US government debt since the summer of 2009. But Japan and Great Britain are among the main buyers of US government bonds.
The importance of the sale of US government debt by Saudi Arabia lies in the fact that it is the basis of the petrodollar system created in the seventies of the last century, according to which Americans bought Saudi oil for dollars. Naturally, for all the decades that have passed since then, the Saudi rial has been pegged to the US currency. Riyadh is now trying to diversify its economy and is expanding ties with its biggest trading partners, including China.
High oil prices and an increase in its production and exports allowed the KSA to have large foreign exchange reserves. A year ago, senior Saudi officials said the kingdom was going to take its time to part with the money. It is not yet clear what Riyadh will do with the billions in proceeds from the sale of US government bonds. The most likely recipients are the National Development Fund, which invests in building the kingdom's infrastructure, and the Public Investment Fund (PIF), Saudi Arabia's sovereign wealth fund.
In 2023, Riyadh voluntarily reduced oil production to increase its cost, but as a result, foreign exchange receipts from oil sales were greatly reduced. In 2022, Saudi Arabia received almost $326 billion, but this year Riyadh is very much at risk of returning to the budget deficit that it has lived with for almost a decade, with the exception of last year's surplus.
This article originally appeared in Russian at expert.ru