Plummeting values of letter of credit (L/C) openings are pointing to a substantial weakening of Saudi Arabia's economy.

The introduction of value added tax (VAT) is thought to be one reason behind the kingdom's sluggish economy.

L/C openings

Import financing by Saudi Arabia's banks fell almost 6 per cent in the second quarter of 2018 according to data from the Saudi Arabian Monetary Authority.

The value of new L/C openings fell to 23.7 billion riyals (US$5.4bn) from 25.1 billion riyals in the same quarter in 2017.

The value of L/Cs opened for textile imports declined by 48 per cent while there were also huge falls in L/C openings for vehicles, machinery and building materials.

Economic commentary

"A critical factor is the introduction of VAT this year, this is especially at a time of weak demand in the economy with soft investment and labour market trends," chief economist at Abu Dhabi Commercial Bank, Monica Malik, told local media.

Saudi Arabia's economy is in a state of flux due to the introduction of several reforms intended to reduce the country's reliance on oil revenues.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.