Khalid Alsweilem, former chief counsellor and head of investment at the Saudi Arabian Monetary Agency (SAMA) has proposed the creation of two sovereign wealth funds to help Saudi Arabia change the way it manages its oil wealth.
Currently SAMA manages most of the money earned through sale of oil for the country and, as of June 2015, has net foreign assets of $664.5bn. However the finance ministry is able to call upon these reserves when it needs to cover budget deficits caused by low oil prices.
This arrangement has led to SAMA’s foreign assets reducing at the rate of about $160bn per year.
Alsweilem’s suggestion is to create two sovereign wealth funds that are not able to be used directly by the finance ministry. Alongside this he proposes that steps are taken to disconnect the level of state spending from the oil reserves.
Alsweilem said: “There’s an inherent conflict of interest in the current model which we need to remove.”
The two funds would take the form of a Stabilisation Fund, a low-yeilding liquid portfolio, and a Savings Fund, a higher-risk investment fund.
This change, if adopted, could have implications outside Saudi Arabia as most of SAMA’s assets are held in the form of low-risk foreign securities.
Alsweilem, who is now a fellow at the Harvard Kennedy School’s Belfer Center in the US, made these suggestions in a paper titled “A Stable and Efficient Fiscal Framework for Saudi Arabia”.