Saudi Prince calls for sovereign fund

05/11/2014 00:59 AST

Saudi Arabia should set up a sovereign wealth fund to protect itself from sliding oil prices by earning higher returns from its foreign reserves, Saudi billionaire Prince Alwaleed bin Talal said yesterday.

Prince Alwaleed publicly urged the government last month to do more to protect the economy of the world’s top oil exporter from the slide, and yesterday he recommended that officials put most of the kingdom’s official savings in a new fund.

“The budget of the kingdom of Saudi Arabia depends 90 percent on oil ... I’ve already said that this is a huge mistake,” said the prince, who is one of the kingdom’s most prominent businessmen and international investors. “And I have said before that if the situation remains the same then we could face a deficit in 2015 and have to use the reserves, which is something unfavourable.”

Saudi Arabia should therefore set up a sovereign fund similar to those of Kuwait, Abu Dhabi, Singapore and Norway that could earn 5 or 10 percent a year, Prince Alwaleed told reporters.

The annual earnings of the fund would cover a large part of the budget deficits which the government may now run because of cheaper oil, he said. The International Monetary Fund has estimated Saudi Arabia would need an average oil price of $91 a barrel in 2015 to balance its state budget. “What I’m asking for now in this open forum is to have an active sovereign wealth fund, and to put in it all the excess foreign exchange that you have, all the money you have...” Prince Alwaleed said.

The Saudi central bank has built up immense foreign reserves over the past several years of high oil prices; net foreign assets totalled SR2.76 trillion ($736bn) in September, up 6 percent from a year earlier.

In June this year, the country’s influential Shura council advisory body discussed a proposal to establish a sovereign wealth fund, but no decision was reached. 

Reuters