Bonds, Commodities, Currencies, Emerging Markets, Frontier Markets, Stocks

Saudi Arabia To Raise $27 Billion In Bonds Trying To Balance The Budget Due To Decline In Oil Prices

Saudi Arabia plans to raise $27 billion on the bond market by the end of 2015, according to the Financial Times. The country needs a $106 per barrel crude price to balance the budget. The bond sale is an attempt to mitigate the 47 percent decline in oil.

Saudi Arabia Flag

Riyadh is planning to issue $5.3 billion in bonds (tranches of five-, seven- and 10-year terms) each month until the end of the year, the financial newspaper reports.

According to RT

Riyadh has spent $65 billion of its fiscal reserves since the oil decline began, down from the $737 billion maximum in August 2014, FT says.

If the information on the bond issuing plan is confirmed, this would justify that Riyadh wants to continue its government spending as if the oil price hadn’t fallen from $115 per barrel in June 2014 to less than $50 this week. Saudi Arabia keeps bankrolling high-cost infrastructure projects, public sector wages and a war in Yemen.

The irony is that Saudi Arabia played a key role in crushing the oil prices. This June in Vienna, Riyadh-dominated OPEC confirmed its November decision not to cut crude output from 30 million barrels a day.

John Kerry, the US Secretary of State, allegedly struck a deal with King Abdullah in September last year under which the Saudis would sell crude at below the prevailing market price. That would help explain why the price has been falling at a time when, given the turmoil in Iraq and Syria caused by Islamic State, it would normally have been rising.

On the equity side, The Street reported on June 15th that

Saudi Arabia’s stock market, valued at $585 billion, opened up to direct foreign investment for the first time Monday, as the kingdom seeks an economic boost amid low global oil prices.

The news agency also added the following:

The opening of the Tadawul Saudi Stock Exchange allows companies, particularly those that are not in the oil business, to raise money straight from foreign investors, with the goal of expanding businesses, diversifying the economy and creating more jobs for the kingdom’s growing population. Before Monday, foreigners only could access the market indirectly, through a local Saudi institution, which was costly and complicated.

An influx of foreign money could help to plug some of the external shortfall and slow the pace at which Saudi Arabia is drawing down its reserves.


About ETFalpha

Consultant & Founder of ETFalpha ◦ Chief ETF Strategist & Co-Founder of EMerging Equity


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