War-driven liquidity crunch weighs on Saudi growth plans

The spillover effects from the Kingdom’s tightening bank liquidity on Vision 2030 got ink in Bloomberg last week. The outlet casts Saudi as caught in a war-driven liquidity squeeze that is sapping the non-oil economy and crowding Vision 2030 plans.

By the numbers: The Saibor-SOFR spread has widened to about 120 basis points, from a normal level nearer 70, as UAE banks and government entities pull deposits; credit grew 2.4% in 3Q while deposits fell 1.8%; and both S&P (-1.3%) and the government itself (-3.6%) now expect the economy to contract this year.

The worry is the spillover. Costlier funding, project-driven credit demand, and regional geopolitical uncertainty are a headwind for the non-oil economy, ADCB’s Monica Malik said. That sustained pressure could slow the project spending that drives the diversification push. Goldman’s Farouk Soussa expects the squeeze to be short-lived, noting SAMA has tools to ease it, as it did in 2022 by placing bns of USD with cash-strapped banks.