On the subject of Saudi governmental spending, you might wish to read this from the WSJ
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http://www.wsj.com/articles/saudi-a...5-billion-to-plug-budget-shortfall-1439305126
MARKETS
Saudi Arabia Issues Bonds Worth $5 Billion to Plug Budget Shortfall
No. 1 oil exporter grapples with the fallout from lower crude prices
Al-Faisaliya tower is seen through metal bars from a nearby building under construction during a sandstorm in Riyadh, Saudi Arabia. The country relies on oil sales for 90% of its budget revenue. PHOTO: ASSOCIATED PRESS
By NICOLAS PARASIE in Dubai and AHMED AL OMRAN in Hofuf, Saudi Arabia
Updated Aug. 11, 2015 2:09 p.m. ET
HOFUF, Saudi Arabia—Saudi Arabia has issued bonds worth 20 billion riyals ($5.33 billion), and plans to raise billions more to maintain its spending plans, as the world’s top oil exporter grapples with lower revenues amid a dramatic drop in energy prices.
The bonds were sold to local banks and institutions in three tranches of five-, seven- and 10-year maturities, the official Saudi Press Agency, or SPA, said Tuesday, citing the Saudi finance ministry. Saudi Arabia issued development bonds worth 15 billion riyals in June as well, its first sovereign issuance since 2007. More multibillion debt sales could follow in the coming months, the SPA said.
Saudi Arabia’s debt issuance comes as the kingdom and the other oil-exporting economies of the Persian Gulf are contending with the fallout of lower oil prices that have sunk below $50, roughly half of what they were at a year ago. Oil revenue makes up for most of the budget income of these countries, or close to 90% in the case of Saudi
Arabia.
Until now, most of the Persian Gulf states have opted to continue spending on infrastructure to spur economic growth. That reluctance to cut spending comes at the cost of widening deficits and increasing budgetary strains.
The International Monetary Fund recently said Saudi Arabia is likely to run a fiscal deficit of about 20% of its gross domestic product, or about $150 billion, this year. Economic growth, meanwhile, will hover around 3.5% this year but weaken in 2016, the IMF said.
“While the large fiscal expenditures and infrastructure projects are pushing the deficit higher this year, it is also keeping domestic activity resilient, helping to partly offset the oil shock,” said Kaan Nazli, senior economist for emerging market debt at Neuberger Berman.
Saudi Arabia has been tapping its foreign reserves to make up for the loss in oil revenue: at the end of June, the central bank’s foreign assets stood at about $664 billion, down more than 9% from $733 billion a year earlier.
Besides Saudi Arabia’s domestic spending on infrastructure and welfare, the country is fighting the growing menace of Islamic State, and is directly involved in the Yemen conflict, where it is leading a military coalition against the Iran-backed Houthis.
In recent years, the country has also been ramping up its military spending, investing billions of dollars into building and upgrading its arsenal amid growing unrest in the region.
Saudi Arabia, whose debt-to-GDP ratio is estimated at less than 2%, sold its bonds locally and relied on its domestic financial sector rather than tapping international markets, a move some bankers attribute to ample liquidity on the banking side.
The country has already raised about 35 billion riyals through bond sales locally, and news reports suggest that amount could reach 100 billion riyals by the end of the year. The ministry of finance couldn’t be immediately reached for comment on Tuesday.
Analysts at London-based Capital Economics said the bond issuances are a sign of Saudi Arabia’s willingness to widen its domestic capital market. In June, Saudi Arabia for the first time opened its stock market to direct foreign investments.
“A deeper government bond market would provide investors with a greater choice of assets to hold in their portfolios,” said Capital’s William Jackson. “And it would allow the development of a yield curve, allowing for the more efficient pricing of private-sector debt,” he added.
Write to Nicolas Parasie at
nicolas.parasie@wsj.com and Ahmed Al Omran at
Ahmed.AlOmran@wsj.com
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