‘Saudi Arabia may depeg riyal’
LAST RESORT: Billionaire prince says country facing unprecedented changes
SAUDI billionaire Prince Alwaleed bin Talal raised the possibility that the kingdom may depeg its currency as the country undergoes unprecedented social, political and financial changes.
“As a last resort, maybe some time two, three years down the line, it’s a possibility,” Alwaleed told Bloomberg TV.
“Meanwhile, it should stay where it is right now. There are so many things happening.”
Saudi officials have repeatedly sought to reject speculation on maintaining the currency’s peg to the US dollar as the country battles slowing growth and slumping oil income. Saudi central bank governor Ahmed Alkholifey earlier this week reiterated the commitment to maintaining the peg.
The world’s biggest oil exporter halted payments to contractors last year as it sought to rein in a budget deficit that reached about 15 per cent of gross domestic product.
Authorities also have introduced a package of austerity measures, including cuts to public sector wages and energy subsidies.
Economic growth is expected to slow to 1.3 per cent this year, according to a Bloomberg survey of economists, the lowest level since the 2009 global recession.
The currency has been fixed at about the same rate since the 1980s. Since its introduction, the riyal’s 3.75 per US dollar peg has been instrumental in shielding the economy from the volatility of oil and natural gas.
As the Saudi government seeks to navigate the worst economic slowdown since the global financial crisis, speculation has mounted this year that the world’s biggest oil exporter won’t be able to maintain the riyal’s peg to the US dollar as revenue plunges.
Hedge funds, such as PointState Capital and Pershing Square Capital Management, have wagered that the fixed rate will be dropped.
“It’s the first time any policymaker in the kingdom has even raised the prospect of depegging, and that’s significant,” said Capital Economics Ltd chief emerging markets economist Neil Shearing, here.
“But the message for the next year or so is still steady as she goes — signs point to keeping the peg in place.”
A fixed exchange rate helps the central bank accumulate foreign reserves when oil prices rise and avoid squandering the windfalls that anchor investor confidence during economic downturns. It also helps cap long-term inflation by effectively linking monetary policy to that of the United States.
Alwaleed also told Bloomberg TV in Riyadh that all of his stakes in public companies, including Citigroup Inc, were potentially for sale, reversing a longstanding policy that some of his most prized shareholdings were “forever”.
Kingdom Holding Co, the prince’s investment firm, has held Citigroup shares since 1991, according to its website, a span that included its 98 per cent plunge during the financial crisis. It has since rallied 436 per cent.
It has had Apple Inc for almost 20 years and eBay Inc for 16 years.
Kingdom Holding, in which the prince owns a 95 per cent stake, has about five per cent of Twitter valued around US$1 billion (RM4.38 billion).
“Everything’s on the table,” Alwaleed said.
“If our interest requires Kingdom Holding to divest from any company, sure we’ll do it. There’s nothing called forever.” Bloomberg