Saudi Liquidity Hits Record SAR2.898 Trillion in Q2 2024

Saudi Arabia’s broad money supply (M3) reached a historic high of SAR2.898706 trillion by the end of the second quarter of 2024, marking a 9% year-on-year increase, according to the Saudi Central Bank (SAMA). The surge, detailed in SAMA’s July statistical bulletin, reflects a robust and expanding financial landscape in the Kingdom, with liquidity growing by SAR238.15 billion compared to the same period in 2023.

Context and Background

The sustained growth in domestic liquidity underscores the strength of Saudi Arabia’s economic framework amid ongoing diversification efforts under Vision 2030. A key indicator of financial health, broad money (M3) includes currency in circulation, demand deposits, time and savings deposits, and other quasi-monetary deposits. The record high in Q2 2024 follows a steady upward trend, with liquidity rising 3% quarter-on-quarter, a SAR74.96 billion increase from the previous quarter’s SAR2.823745 trillion. Since the start of the year, liquidity has expanded by 5.5%, adding over SAR148.83 billion from January’s close of SAR2.720957 trillion. This consistent ascent highlights the effectiveness of Saudi monetary policy and the growing confidence in the national economy.

Key Details

SAMA’s data reveals the composition of the M3 aggregate, providing insight into where liquidity is concentrated. Demand deposits remain the largest component, accounting for 49% of the total at SAR1.421423 trillion by the end of Q2 2024. Time and savings deposits followed, representing 31% at SAR903.712 billion. Other quasi-monetary deposits, which include residents’ foreign currency deposits, deposits secured by letters of credit, ongoing transfers, and repurchase agreements, contributed 12% at SAR344.384 billion. Currency in circulation outside banks made up 8%, totaling SAR229.187 billion. This distribution indicates a healthy mix of accessible funds and savings, supporting both consumption and investment activities.

Implications and Impact

High liquidity levels act as a catalyst for economic and commercial expansion, facilitating credit availability and supporting positive rates in economic development. For businesses, ample liquidity means easier access to financing for projects and operations, while for consumers, it signals a stable environment for spending and saving. At a regional and international level, Saudi Arabia’s robust liquidity position reinforces its role as a financial powerhouse in the Middle East, attracting foreign investment and enhancing its standing in global markets. The growth in M3 also aligns with increased economic activity, as the Kingdom pursues ambitious giga-projects and diversifies away from oil dependence.

Vision 2030 Alignment

The record liquidity levels are a testament to the Kingdom’s progress under Vision 2030, which aims to build a diversified and sustainable economy. A liquid and well-functioning financial system is essential for achieving the vision’s goals, including boosting the private sector, fostering innovation, and creating jobs. As Saudi Arabia continues to implement reforms and invest in strategic sectors, the strong monetary indicators provide a solid foundation for long-term prosperity and global competitiveness.

20 Questions

Q1. What is the significance of the SAR2.898 trillion liquidity figure?

A1. It represents a historic high for Saudi Arabia’s broad money supply (M3), indicating robust economic health and ample funds available for investment and spending, which supports the Kingdom’s development goals.

Q2. How much did liquidity grow year-on-year in Q2 2024?

A2. Liquidity grew by 9% year-on-year, an increase of SAR238.15 billion compared to the SAR2.660556 trillion recorded in Q2 2023, according to SAMA data.

Q3. What are the main components of M3?

A3. M3 comprises demand deposits, time and savings deposits, other quasi-monetary deposits, and currency in circulation outside banks, each playing a distinct role in the money supply.

Q4. Which component contributed the most to M3?

A4. Demand deposits were the largest contributor, accounting for 49% of the total at SAR1.421423 trillion, reflecting strong transactional activity and confidence in the banking system.

Q5. What was the quarter-on-quarter growth rate?

A5. Liquidity expanded by 3% from the previous quarter, a rise of SAR74.96 billion, demonstrating consistent upward momentum in the financial sector.

Q6. How did liquidity change from the beginning of 2024?

A6. Since January, liquidity increased by 5.5%, adding over SAR148.83 billion from SAR2.720957 trillion, highlighting sustained economic expansion.

Q7. What does high liquidity mean for businesses in Saudi Arabia?

A7. It facilitates easier access to credit and financing for projects, enabling businesses to invest, expand operations, and contribute to economic diversification under Vision 2030.

Q8. How does this liquidity growth impact the banking sector?

A8. It strengthens banks’ ability to lend and manage deposits, fostering a stable financial environment that supports both retail and corporate banking activities.

Q9. What are quasi-monetary deposits?

A9. They include residents’ foreign currency deposits, deposits secured by letters of credit, ongoing transfers, and repurchase agreements, representing 12% of M3 at SAR344.384 billion.

Q10. Why is currency in circulation outside banks important?

A10. At SAR229.187 billion, it constitutes 8% of M3, indicating the level of cash used for daily transactions and its role in supporting economic activity.

Q11. How does Saudi Arabia’s liquidity compare regionally?

A11. The record high positions Saudi Arabia as a leading financial hub in the Middle East, showcasing its economic resilience and attracting regional and international investment.

Q12. What role does SAMA play in monitoring liquidity?

A12. The Saudi Central Bank regularly publishes statistical bulletins, providing transparent data that helps assess monetary conditions and guide policy decisions.

Q13. What are the implications for inflation?

A13. Ample liquidity, when managed effectively, can support economic growth without necessarily triggering high inflation, as SAMA monitors monetary aggregates closely.

Q14. How does liquidity support Vision 2030?

A14. It provides the financial resources needed to fund giga-projects, support SMEs, and drive diversification, aligning with the vision’s goal of a thriving economy.

Q15. What is the difference between M1, M2, and M3?

A15. M1 includes currency in circulation and demand deposits; M2 adds time and savings deposits; M3 further includes other quasi-monetary deposits, offering a broader measure of money supply.

Q16. How does liquidity growth affect foreign investment?

A16. A liquid and stable financial market enhances investor confidence, making Saudi Arabia an attractive destination for foreign direct investment and portfolio inflows.

Q17. What does the 9% growth indicate about the Saudi economy?

A17. It signals a vibrant and expanding economy, with increasing financial resources that can be channeled into productive sectors, supporting sustainable development.

Q18. Are there any risks associated with high liquidity?

A18. When not managed prudently, high liquidity could lead to asset bubbles or inflation, but SAMA’s oversight ensures a balanced approach to monetary stability.

Q19. How does this data reflect on Saudi Arabia’s global standing?

A19. It reinforces the Kingdom’s position as a financially sound nation, capable of withstanding global economic shifts and contributing to regional stability.

Q20. What can we expect in the coming quarters?

A20. Continued growth is likely as Vision 2030 initiatives progress, with liquidity expected to remain robust, supporting further economic expansion and diversification.

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