Photographer: Sarah Pabst / Bloomberg
Photographer: Sarah Pabst / Bloomberg
Saudi Arabia has replaced its central bank governor, saying by 2025 it would more than double the size of its sovereign wealth fund in a series of late-night announcements ahead of the Crown Prince’s flagship investment conference.
Ahmed Alkholifey was removed from his post as head of the monetary authority. He will be replaced by Fahad Al-Mubarak, who was the governor of the central bank from 2011 to 2016. The reason for the change was not provided.
Al-Mubarak was recently a foreign minister and served as sherpa of the kingdom during the presidency of the Group of 20 Industrialized Economies last year. He was also previously chairman of Morgan Stanley’s Saudi Arabia unit. Alkholifey was at the same time appointed as an adviser to the royal court.
The central bank and the sovereign fund are going to play an increasingly important role in stimulating the domestic recovery, as the government wants to promote an economy hit by the twin shocks of the coronavirus pandemic and the low oil prices. The central bank’s mandate was recently expanded to include support for economic growth, while the crown prince said the welfare fund would invest $ 40 billion a year domestically.
What Bloomberg Economics says …
‘As governor of a central bank with a fixed currency, the role is not the classic role in setting interest rates. The importance of the post is to be the guardian of the country’s foreign exchange reserves. ”
– Ziad Daoud, Chief Economist for Emerging Markets
Saudi Arabia pegs its currency to the dollar and tends to stay locked in with the US Federal Reserve. The change in leadership is unlikely to affect central bank policy, with most decision-making levers in the kingdom controlled by Crown Prince Mohammed Bin Salman.
The central bank of Saudi Arabia has been one of the most important instruments in stimulating the economy, as the coronavirus pandemic and low oil prices are hampering the private sector. The monetary authority has expanded more than 100 billion rows ($ 27 billion) to local banks in liquidity injections and to cover the cost of loan deferrals for small businesses hit by the pandemic.
Leading role
The central bank also controls the reserves of the kingdom, which is one of the largest in the world with 1.7 billion rows. But its historical role as manager of the country’s savings is embezzled by the Public Investment Fund, Saudi Arabia’s $ 400 billion sovereign wealth fund chairman by the Crown Prince.
The PIF, as the fund is known, received a $ 40 billion transfer from the central bank in March for new investments, as it looks like it would capitalize on a slump in world markets caused by the onset of the coronavirus pandemic. It later revealed that it had spent about $ 10 billion on buying shares in Western companies, which it sold a few months later when the market recovered.
Prince Mohammed said in a separate announcement on Sunday that the sovereign wealth fund should manage four billion rows by 2025, making it one of the largest government-controlled investors in the world.
If the PIF achieves the goal, it will obscure the current size of China Investment Corp. and be similar to Norway’s giant sovereign wealth fund.
Since announcing plans in 2016 to turn the fund into one of the cornerstones of a program to reform the Saudi economy, its size has more than tripled.
Led by Yasir Al-Rumayyan, a close adviser to the Crown Prince, the fund shifted investment priorities from shares in state-owned enterprises to building stakes in Uber Technologies Inc. and Jio Platforms Ltd., the digital services controlled. by Indian billionaire Mukesh Ambani.
The PIF last month rejected some of his leading leadership positions because he was willing to play a bigger role in the local economy.
Investment window
The Welfare Fund is hosting its annual investor conference within days, with the global pandemic that will make most of the proceedings virtual. Since its launch in 2017, the Future Investment Initiative has hosted hundreds of titans, including JPMorgan Chase and Co. ‘s Jamie Dimon and Masayoshi Son of Softbank. The event helped establish the fund’s reputation as a major source of international investment.
In the next five years, the strategy of the PIF looks like a new direction. Prince Mohammed reiterates the promise that the fund will pump 150 billion rows or more into the local economy each year, adding that by 2025 it would directly and indirectly create 1.8 million jobs – a pinch for the anxiety around 15% unemployment rate among Saudi citizens.
– With help by Matthew Martin
(An earlier version of this story corrected currency conversion in fourth paragraph.)