S. Arabia issues $4bn bonds to cover deficit

RIYADH: Saudi Arabia has issued its first sovereign bonds since 2007 to cover a budget deficit created by low oil prices, launching a series of debt sales that could reshape its financial markets.


The government sold 15 billion riyals ($4bn) of bonds to local banks this year, Friday’s al-Iqtisadiya daily quoted central bank chief Fahad al-Mubarak as telling reporters.

The report did not reveal financial terms or say exactly when the sales occurred, or whether the local currency bonds were Shariah-compliant, which would allow them to be bought by Islamic banks.

But they mark a big shift in Saudi policy. Until this year, the world’s top oil exporter focused on paying down its public debt, which totalled just 44bn riyals at the end of 2014, about 1.6 per cent of gross domestic product.

While a few state agencies or state-controlled firms have issued bonds in the past few years, the government’s last sovereign development bond was issued in 2007.

But because of the plunge in oil prices since June 2014, Riyadh faces a huge budget gap this year, which Mubarak said was expected to exceed the originally projected 145bn riyals. The International Monetary Fund has estimated the deficit will be about 20pc of GDP, or approximately $150bn.

So far Riyadh has mainly been running down its financial reserves to cover the deficit; Mubarak said the government had withdrawn 244bn riyals from reserves in 2015.