The Saudi Arabian Monetary Authority (SAMA) has affirmed its commitment to a currency peg on the US dollar, despite being in the midst of an economic crisis compounded by low oil prices and the coronavirus pandemic.
The Saudi riyal has been pegged to the US dollar for over three decades.
In a press statement, SAMA said “SAMA remains committed to maintaining the exchange rate at the official rate of 3.75 riyals to the dollar as an anchor of monetary and financial stability.”
A currency devaluation would be too costly for Saudi Arabia and the better option is to adapt to the oil shock through fiscal changes, according to Goldman Sachs Group Inc.
“Unlike a devaluation, fiscal policy can shift the burden of adjustment on those more capable of bearing it through, for example, taxes on luxury goods,” Farouk Soussa, a Goldman Sachs economist, said in a report. “This is not to say there would be no economic or socio-political costs, but we believe these would be lower than in the case of a devaluation.”
The statement from SAMA added: “SAMA’s foreign exchange reserves remain sufficient to meet all demands of the national economy for foreign exchange, with foreign exchange reserves covering 43 months of imports and 88 percent of broad money (M3). As such, SAMA affirms that the current exchange rate arrangement is a primary driver for monetary stability and sustainable economic growth.”
On Saturday, Saudi Finance Minister Mohammed Al-Jadaan said officials were looking at “painful” choices and deep cutbacks to contain the fiscal damage – measures likely to hobble the private sector in a country where businesses rely heavily on government contracts. Authorities already announced a 50 billion-riyal ($13.3bn) reduction in budget spending.
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