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Saudi Interbank Rates Soar, Deposits Flee As Cash Crunch Intensifies
If you frequent these pages, you’re probably well aware that the Saudis are in trouble.
Exactly a year ago, Riyadh decided to embark on an epic quest to send crude prices plunging on the way to, i) bankrupting the US shale complex and ii) achieving “ancillary diplomatic benefits,” like tightening the screws on Moscow’s energy-dependent economy in hopes of forcing Putin to give up Assad.
Long story short, the kingdom’s plan didn’t work.
Thanks to ZIRP, legions of yield-starved investors in the US ensured that capital markets remained open to otherwise insolvent drillers, allowing US producers to stay in business longer than the Saudis anticipated. Meanwhile, not only did Putin not give up Assad, he actually sent the Russian air force to Latakia and to add insult to injury, Moscow’s warplanes are now bombing Saudi-financed Sunni militias in Syria.
Meanwhile, slumping crude prices wreaked havoc on the kingdom’s finances. As we’ve documented extensively, the Saudis are now staring down a deficit on both the fiscal and current accounts with the former amounting to some 20% of GDP and the latter representing the first negative balance in at least 15 years.
Weighing on the budget deficit is a laundry list of generous subsidies designed to prevent an Arab Spring-type event from coming to Riyadh and the necessity of preserving the riyal peg. Here's what we mean by "generous" subsidies (left pane compares price of petrol and diesel in the UAE versus Saudi Arabia):
And here's a look at the pressure on the peg (i.e. market expectations as telegraphed by 12-month SAR forwards):
So what's a despotic, puritanical Islamic monarchy to do? Well, you can tap the debt markets to offset the FX reserve burn and indeed Riyadh has already gone that route, but as we noted earlier this month, it's not clear how far they'll ultimately want to push that given that projections already have the country's debt-to-GDP ratio climbing from basically zero to more than 33% by 2020:
Another option is to simply cut expenditures and if that's not feasible, you can always just stop paying people. Indeed, reports now suggest that Riyadh is delaying contractor payments by as much as six months in the face of the acute cash crunch. As Bloomberg reported last month, "companies working on infrastructure projects have been waiting six months or more for payments as the government seeks to preserve cash. Delays have increased this year and the government has also been seeking to cut prices on contracts."
Of course when you delay payments to private sector businesses you run the risk of derailing an economy already beset by crimped government finances. "Payment delays could slow the completion of projects under construction, including the $22 billion Riyadh metro, and curb the expansion needed to create jobs for a rising population," Bloomberg observed, adding that "in the past, government spending has been a catalyst for growth."
Well don't look now, but money markets are tightening dramatically in the kingdom as deposits dry up. The 3-month Saudi Interbank Offered Rate has jumped 13 bps in November to its highest level since early 2009.
Here's more from Bloomberg:
Income from oil and related products contributes more than 80 percent of Saudi government revenue, and crude’s 37 percent plunge over the past year is poised to result in a 10-fold increase in the country’s budget deficit. That’s squeezing liquidity in the banking system, with demand deposits dropping 4.7 percent in October, as those of businesses, individuals and government entities slumped.
"The drop in deposits in October, in absolute amount, is probably the biggest since the 1990s," Murad Ansari, a bank analyst at EFG-Hermes Holding SAE, said by phone from Riyadh on Monday. "There are payment delays from the government to contractors, which is one of the reasons for the decline in private sector deposits, and public sector deposits are shrinking as the government is running a deficit."
In short, the Saudi economy is gradually grinding to a halt, which is what happens when you deliberately tank the commodity that accounts for more than three quarters of government revenue and when government spending is the linchpin for economic growth. While it's not clear how much of this is "priced in" so to speak, you'll note that there's not a lot of breathing for the Saudis in terms of avoiding a recession in the not-so-distant future (right pane shows Deutsche Bank's estimate for growth in 2016 is just 1.4%):
So either Riyadh backs an output cut this Friday, the kingdom abandons the dollar peg, or both, but what's clear is that the current arrangement isn't even remotely sustainable, and if the war in Yemen drags on, the pressure on the fiscal account and on the SAMA reserve warchest will only grow.
Good luck Salman, you're going to need it.
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Couldn't have happened to a more bloodthirsty kingdom.
Amen.
(And I still have that vision of Obama bowing to Saudi King Abdullah)
Don't give the Saudi's a hard time for running a regime of violence, they are just trying to keep up with their big pimp brother's in DC.
Re: Fleeing Deposits, Cash Crunch, Political upheaval threatening Saudi Royals;
Couldn't happen to a more deserving family of Pedophiles, murderers, morally depraved crypto satanists.
25% of the population of Saudi Arabia are functionally illiterate ie cannot read or write above a grade 4 level. This should get interesting when the money runs out for bread and head chopping.
Who knows what the Saudi’s have cooking under their kaffiyehs? Their bank reserves are in a ground vault, black, liquid and not fiat. Their near demise is highly over-rated.
...Agreed...
"25% of the population of Saudi Arabia are functionally illiterate ie cannot read or write above a grade 4 level. This should get interesting when the money runs out for bread and head chopping."
...A few well planned, Saudi A'ian nail gun/pushed off tall building suicides and watch that country fall into chaos.
Will have > dozen Royals competing for the country's control.
This What's-Been-Happening-Since-Russia-Got-Involved-On-September30th debacle would be over and in process of settling if Saudi Arabia (like any nation, like any individual in the courts of law) had to defend their own position for themselves regarding what they choose to do or not do as a world entity.
This world government of Spy VS Spy is really annoying and dangerous.
The smell of DEFAULT hangs low in the air on Monday morns in the desert mixed in with the sweet odor of fresh, warm camel dung.
Camel dung...it smells of hether honey and aging red wheat as it graces the doorway in the morning air.
You've brought nostalgia back into my life Roach.
Nostalgia isn't what it used to be.
Whatever. It's collateral.
And I have the video of G. W. holding hands with with one of the princes.
...while whispering, ''Please don't attack us again, we'll do whatever you ask''.
Not only did Obama bow to Saudi King Abdullah, he refused to even offer a nod to the Queen of England. And that bow to Abdullah was a deep nose to the ground bow.
Where is Lawrence when you need him?
I'm sorry, but I do agree here: Fuck Saudi Arabia's historical leaders and royal family; for the rest of the population, I have nothing to say to you that you could not interpret from my guise and eyes.
http://www.ft.com/intl/cms/s/0/d1be572a-86fd-11e5-90de-f44762bf9896.html
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FUCK these guys!
Moar beheaded!!!
Maybe lopping off a few more heads will solve the problem. Who needs cash when I don't have a head?
I'm just glad none of this can affect the price of my stawks.
Ah, but you fail to see that it WILL.
The chart above clearly displays the true problem as expressed in a change in rates coincident with the YUAN devaluation: Saudi Arabia has not engaged in devaluation in concert with the rest and is thus wildly overpriced.
IF the SA devalued by 50% the price of Oil in Saudi money would be the $90/bbl they need to balance the books aka revenue/spending 'as per before' the ( concerted ) serial global devaluations of the last 8 or 10 years.
I wonder if the Chinese reval squeeze was actually meant to constrict and/or expose funding of foreign regimes and organizations in global markets...
Anyway.. A Saudi Arabian revaluation would send a shock of change coursing through the debt and stock markets via the alteration in the dynamic in pricing oil in Dollars/Rials. It might engender a rush by other nations to devalue.
In such a chain of events, IF the US doesn't follow suit and somehow officially revalue the Dollar, the effect would be to stabilize oil at a very low price in Dollars/a very strong Dollar. -The US 'imports deflation' via transmition of weak Rial policy into the pricing mechanisms of the broadly petro-(Dollar complex) based economy..
Depending on the ( non ) reaction from the US Treasury/etc. this could also be seen as favorable to US Bonds as the Dollars of denomination would theoretically have higher spending/leverage power than the Bonds of the devaluing OPEC partners and petro-dollar complex/trade/partners/etc..
ATTENTION:
"Monday Morning Stonings will be delayed due to the ongoing Stoner's Strike."
Stay tuned.
Saudi Arabia can chop a few more heads or bomb a few more hospitals in Yemen for consolation.
Karma is a bitch
Saudi Arabia to 'sue' Twitter user describing Palestinian poet's death sentence as 'Isis-like'http://www.independent.co.uk/news/world/middle-east/ashraf-fayadh-saudi-...
Yemen hospitals ‘deliberately’ targeted in 100 attacks since March – ICRChttps://www.rt.com/news/321522-yemen-hospitals-deliberately-targeted/
The daft evil cunts can enjoy their pain.
That interbank offered rate is taking a nice moon shot.
Hyperinflation, right?
No, this is that other thing.
So, how's that keeping oil cheap thingy working out for ya, huh?
-Argenta
off with their heads! [/red queen]
And whatever you do dear monarch, don't cut the subsidies to all those young Saudi males lounging around at their Faaarrreee! universities or popping over to the doctor for their Faaarrreee! healthcare or going home to their Faaarrreee! public housing.
Or that could be your head-in-a-basket ;-)
With all the refugees in Europe the Saudis better start building mosques by the dozen. I'll buy Caterpiller options and then go around cutting CAT hoses and belts and putting metal chips in the engines at the construction sites. CAT parts and replacements will boast the stock and I'll be rich. The recovery wil continue. What a plan. What can go wrong.
Do you work for the IMF?
Looks like the saudis are headed in the wrong direction. Or you could say that they are head over heels in their haywire plan. Or that they are on the path of becoming headliners of this regional shitshow. Or that they are finally getting a heads-up for what's in store. In any case I do not envy them with what lies ahead.
Looks like they're headed back to their camels, dunes, and tents.
Ironic, that they invented the very number system that is spelling out all the trouble for them right now.
I see where you beheading.
Is it me or does that murderfvker look like a tribe member?
They all look the same to me.
The monstrous beak is the give away
You've heard of kissing cousins? Well these are the fucking kind.
Off with their heads!
Salman has billons and more than enough of PertodOllars, 'merican t bill securities, diamond encrusted space shuttles, 'merican wannabe models his kids can take a dump on, russian fish eggs and french fine wines he can shake a small male childs butt with.
He also has several 'merican MIC bases around for protection from the rest of the arab goy world and constant resupply from the MIC to sell to the newest useaeli/zato boogyman.
The governments of the world are telling the useless eaters they are not needed any longer.
Ignore these ever increasing warnings at your own peril.
Well he can't see his own dick and apparently isn't aware he's on the endangered species list.
Riyadh's not going to go broke before Uncle Sugar does.
Riyadh has what amounts to an unlimited credit line at the Fed, so Riyadh can do its job of pegging oil at USD40 or below and sabotaging the Russian economy.
It's rarely appreciated to what lengths Uncle Sugar will go to defend the House of Saud. Much farther lengths than he ever went to for Israel when she wasn't pointing a nuclear gun at his temple.
An end to cheap Muslim oil and a return of crude to fair value will result in Russia's fulfilling her destiny of dominating Eurasia, and collapse of welfare states in western Europe and blue-state America. Just possibly we'll see the dissolution of the Union and the restoration of state sovereignty. First order of business: repudiation of DC's theft bonds, bringing banksters to justice, expulsion of undesirables of every race and creed, restoration of the right of the people both to issue money and to decide who gets to enter their state.
As you can imagine, the only way to hedge against that is to prevent it at any price.
Doesn't OPEC meet on the 4th? Huh.......see, it ain't so bad........
a few facts
saudi has the odd $600B in foreign holdings, of which probably 30% ($180B) is in US Treasuries. The Treasury is unable to account ofr US treasury holdings to the US Public and lumps all oil producing countries into one bucket.
http://www.sama.gov.sa/en-US/EconomicReports/AnnualReport/5600_R_Annual_...
https://www.nationalpriorities.org/campaigns/us-federal-debt-who/
there are around 4 Rials to the dollar and there are 30 million people in Saudi. (in between CA's 37m and TX 25m. Debt to GDP of 33% to GDP is rather a lot less than both those states both on a direct state debt comparison and, of course, if you were to apportion the national debt back to CA and TX it would look a whole lot worse (but a more accurate comparison.
note also that the figures for US debt do not reflect the amount borrowed from the Fed to buy US Treasuries. This is not just SOMA holdings by the Fed directly and needs to reflec tthe massive swap lines between the Fed and other central banks and governments. Smoke and mirrors (or srorrim dna ekomS).
just saying
But if you normalize that to number of beheadings...
Decapitations it is then.
Beats death by unga bunga
What about death by zoomba? Are they the same?
Death by Roomba. Takes hours, but there's no evidence to clean up when you're done.
This article reminds me of the scene in the movie Dune ( http://www.imdb.com/title/tt0087182/ ) where the guild spokesmen accompanying the Navigator to meet with the failing emperor is bleeding from the nose.
i think frank herbert was on one helluvan acid trip when he wrote that, but i agree the comparsions between his fiction (Fremen, water and spice) is similar to current middle eastern politics (IS, water and oil) all mixed in with a bit of Lawrence of Arabia (and the British cheating the Saudis out of the whole of the middle east at the end of World War I (1914-1918) in exchange for the Saudis booting the Turks out of Damascus. (The British wanted the Jews to own Palestine).
That's the price of addiction. And yet people still want to burn oil and support these fucking savages.
You got something better to burn?
ALL fiat is now being sucked into a black hole with increasing velocity...better have a plan B, cause plan A is in a tailspin! tick tock
Well, for all of their control freak stiff rules and laws, and the 'my religion is better than yours' act, they went out and did exactly what the Black Friday fist-fighting American flat screen TV seekers did: they got sucked into pretending they have money to spend that they don't really have. You would think they'd have enough, for all the billions and billions that poured in over the years. But nope. Out of money already. Materialistic and western they are.
The telegraph today was blabbing that the Saudi's could take the pain for at least 5 more years , but I don't see the maths behind that. Its also pointless, within 6 months of any appreciable relief in price, every other producer will be back pumping
For all their wealth there's the unexplainable advance of yemeni forces into saudi territory in the southwest corner of the kingdom where they have taken Rabwa and are basically running Saudis out of Jizan and jafra. All of this against the backdrop that Saudis have to hire mercs from Colombia, Sudan; import ISIS fighters to try to balance the military equation... Western media has grandly ignored the fact that there's a direct alliance between Al Qaeda and Saudis in Yemen. AQ controls the south central part of Yemen with the help of Saudi aviation. Besides that being sort of insane (par for the course) it also reeks of desperation. If Saudis can't raise an army big enough to fight back Houthis in their own country you have to wonder how long till the royals have to move their quarters to London and NY?
http://www.almasdarnews.com/article/breaking-yemeni-army-houthis-capture...
As I$I$ gets eaten by the Russian Bear who will now "back" the Saudi Mercan petroscrip IOU toilet paper dollah and even worse who will pay for the tax cattle nation of mutts' multiple lost wars for xion?
As the Crypt of Saud burns so too will the Great Satan along with its degenerate supremacist apartheid abomination in Palestine.
If Saud de-pegs from the dollar, it could price oil in Yuan.
With Yuan in SDR and an OPEC meeting on Friday, this could be the only chance Saud has to dig itself out of the fiscal hole it has dug for itself.
I anticipate a fall in the prices of female goats.
To be fair, i dont think the saudis are behind the fall in oil prices. they refused/was unable to reduce production...which is not the same thing. World demand plunged for some reason and US shale production still online, too much supply, not enough demand. Given all the Saudi's expenditures, and current cash emergency needs, very obviously they could not reduce production, no matter what the price.
Getting their asses wooped by the Yemeni army isnt helping obviously...since mercs cost so much. Of all the arab states, the Saudis and other emirates must be some of the most fragile societies in existence...I predict they will not survive the blowback from their wahabi crusade.
Oh noes a few dozen princes in their Bel Air mansions might have to cut back on their cocaine and fart intake. The horror.
Death to the HOUSE OF SAUD or Rothchilds, same thing.
Religion of beheading JewwishHarlots born wahabbis must be given the same treatment, but wait & watch, entire saudi arabia is gonna broke.
There is price to be paid for being a friend to evil west.