What explains the continued slide in Saudi Arabia’s FX reserves?

Saudi Arabia’s official foreign exchange reserves have continued to decline sharply, despite the marked improvement in the current account position over the past year or so. This has raised concerns in some quarters but, as we explain in this Watch, it seems to reflect the new sovereign wealth fund, the Public Investment Fund, shifting deposits abroad and off the monetary authority’s balance sheet. The upshot is that we don’t think there is a major cause for alarm.