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 on Tuesday.
Brent crude oil futures sank more than $2 a barrel on Tuesday to a four-year low of $82.32, a day after Saudi Arabia cut its official selling prices to the United States.
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 on Tuesday 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 unfavorable."
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.
"Clearly the income from our sovereign wealth fund would not cover all our budget, but at least should cover a good size of it."
The Saudi central bank has built up immense foreign reserves over the past several years of high oil prices; net foreign assets totalled 2.76 trillion riyals ($736 billion) in September, up 6 percent from a year earlier.
Economists believe the government could draw down the reserves to keep spending at high levels for many years if necessary, and its low debt means it could easily borrow from the markets. So Saudi Arabia does not face any immediate crisis due to the oil price slide.
But the remarks by Prince Alwaleed, who does not have high-level responsibility for economic policymaking in the kingdom, appear to reflect concern among some Saudis about the impact of any long-term decline in oil.
In contrast to its Gulf neighbors, Saudi Arabia does not invest its oil surpluses aggressively in foreign markets; the Saudi central bank is believed to have placed over half of its foreign reserves in low-risk, low-return U.S. dollar assets such as U.S. Treasury bonds and bank accounts.
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.
Prince Alwaleed, owner of international investment firm Kingdom Holding, was visiting Jeddah to view one of the fruits of Saudi Arabia's oil-fueled economic boom -- his Kingdom Tower project.
The tower, now under construction, is projected to cost 4.6 billion riyals and be the world's tallest skyscraper at over 1,000 meters (3,280 feet).
It is scheduled to be completed in 2018, featuring 170 stories that will include offices, luxury apartments and a five-star Four Seasons Hotel with 200 rooms.
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