Emirates NBD: Saudi Arabia FX peg to stay

14/01/2016 09:07 AST

“We believe that the medium term costs of an exchange rate adjustment or de-peg in Saudi Arabia would outweigh any short term boost to government budget revenues in local currency terms. The GCC pegs have proved to be successful nominal anchors, and even if they are adjusted rather than abandoned, this would add uncertainty about future adjustments, and ultimately make the pegs more vulnerable to speculative attacks. Devaluation of the exchange rate would also push up inflation across the region, eroding any short term boost to exports or the budget.

“The Saudi government has sufficient fiscal reserves to meet budget financing requirements for several years. Low debt levels should allow the government to finance part of the deficit through bond issues, and the privatisation of state owned enterprises would provide further liquidity and FX inflows, reducing the need to draw down FX reserves to the same extent as in 2015.”


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