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Page added on July 12, 2015
Saudi Arabia borrows $4bn
Saudi Arabia has borrowed $4bn from local markets in the past year, selling its first bonds for eight years as part of efforts to sustain high levels of public spending as oil prices slump.
Fahad al-Mubarak, the governor of the Saudi Arabian Monetary Agency, said the government would use a combination of bonds and reserves to maintain spending and cover a deficit that would be larger than expected.
“We expect to see an increase in borrowing,” he said, according to a report in the economic daily Al-Eqtisadiah newspaper over the weekend. Analysts have estimated a deficit of about $130bn this year. The government, which had not tapped bond markets since 2007, has been dipping into its large foreign reserves, which peaked at $737bn last August, to sustain spending on wages, special projects and the Saudi-led air war on Yemen. It has drawn down $65bn since oil prices fell.
Bonus payouts for state employees and the military made by the new king, Salman bin Abdulaziz Al Saud, have placed further pressure on state coffers. “Reality is hitting home, and necessity is also hitting home,” said John Sfakianakis, director for the Gulf region at Ashmore, a fund manager.
Saudi Arabia needs an oil price of $105 a barrel to meet planned spending requirements, but the average price for the year is estimated at $58 a barrel, he said. “If the government continues business as usual and draws down like this it will deplete reserves faster than expected, by the end of 2018 or early 2019,” added Mr Sfakianakis.
The issuance of domestic bonds should ease the rate of drawdown on Sama’s overseas assets, which declined to $672bn in May. The domestic bond programme marks a shift in strategy as the sustained slump in oil prices takes its toll on Saudi finances.
In depth
Analysts initially doubted that the government would respond to the fiscal challenge by borrowing, seeking to avoid the parlous state of the state coffers in the late 1990s when domestic debt had risen to about 100 per cent of gross domestic product. Saudi domestic debt had fallen to 1.6 per cent of GDP at the end of 2014.
But analysts say the oil-price decline could be more profound than initially thought. Sama forecasts GDP growth to decline from 3.5 per cent in 2014 to 2.8 per cent this year. Non-oil sector GDP growth, which is vital for creating jobs for the growing legion of unemployed youths, is expected to decline from 5 per cent to 4.7 per cent over the same timeframe.
The government’s sovereign issuance will provide a benchmark for other private sector and state-related entities looking to borrow from capital markets, diversifying sources of funding away from a banking system that could see liquidity fall on lower oil prices.
The regulator has made reforms in debt capital markets a priority this year after opening up its large domestic market to foreign asset managers last month. The IMF is urging the government to trim spending on public sector salaries and subsidies to improve the fiscal balance, but reforming payouts to a population used to state largesse could trigger a potentially negative political impact. Given the size of the deficit, Riyadh may choose to extend its sovereign bond programme to international markets to allow local institutions to continue to fund the domestic private sector. “They will have to turn to overseas markets eventually,” said one Riyadh-based executive with a foreign lender.
14 Comments on "Saudi Arabia borrows $4bn"
joe on Sun, 12th Jul 2015 4:01 pm
It seems war does not agree with such a weak economic base. Great news for tight oil drillers. Very bad news for consumers. 105 per barrel, plus higher FED rates plus a feckless Eurozone will only depress markets, add in TPP and watch as a weak Euro steals yet more US services (would say jobs but most of them already went to China). We are all getting suckered as usual. As energy gets more expensive due to peak oil, the solution is another magicians trick. Heck, Greece may one day be home to the head office of some US mega corporations.
BobInget on Sun, 12th Jul 2015 4:26 pm
Denial about Saudi Arabia’s Yemen aggressions matches AGW climate change abnegators.
War, especially predominantly air wars are really expensive. Try 10 hours maintenance for each flight hour. Then of course, there’s fuel
$4,000 per hour.
http://www.airliners.net/aviation-forums/military/read.main/103605/
WASHINGTON — The U.S. military has begun air-refueling operations for the Saudi-led coalition conducting airstrikes in Yemen, the Pentagon said Wednesday, signaling a deepening of American support for the Arab air campaign.
The Pentagon also said the United States would expedite delivery of ammunition to the Saudis and other members of the coalition who are bombing targets in Yemen. The expedited ammunition has not been delivered yet but will include bombs and guidance systems.
The increased U.S. assistance comes as the Houthi rebels continued their advance on Yemen’s southern port city of Aden, where remnants of the government are taking a stand.
The Saudis said their air campaign has been successful despite the pressure Houthis are placing on the city.
The U.S. Air Force began refueling aircraft on Tuesday, linking up with F-16s from the United Arab Emirates and Saudi F-15s. The planes are refueled outside Yemeni airspace, said Col. Steve Warren, a Pentagon spokesman.
The Pentagon said last week that it had authorized the refueling operations but had not conducted any missions. The Pentagon plans on having tanker sorties available every day for the Saudis and their partner nations in the air campaign.
Boat on Sun, 12th Jul 2015 4:35 pm
Tip for the Saudis, Start cutting benefits for the population now before you become Greece.
Nony on Sun, 12th Jul 2015 4:39 pm
I tried thinking about what this bond issue meant for SA production. Couldn’t decide if it implied more all out production or less.
Makati1 on Sun, 12th Jul 2015 11:02 pm
Boat, in those ME countries, if you cut benefits, they may just remove your head and that of most of your family. A very good incentive to sell your reserves as long as they last.
And what is going to happen as all of the countries holding USTs in their reserves start cashing them in to pay the bills? Think about that run on the Empire of Chaos treasury and then tell me that the US is gonna be OK. LOL
BTW, the current US amount is:
$ 6,137,300,000,000.00 or about two years of the US Federal budget, or ~$20,000 for every man, woman and child in the US. All of it is money borrowed from those countries in the past and now coming due. China holds about 20% of that total. They even owe the Ps $39B. LOL
Davy on Mon, 13th Jul 2015 12:55 am
The Makster struggles to rebuild his shattered Asian agenda with the same wore out arguments. LOL *$*
Tell me folks after what China did to their equity markets would you trust them with your currency and bond investments? No. I thought so. It is better to stay with the devil you know.
Northwest Resident on Mon, 13th Jul 2015 1:36 am
Davy, China is doing just fine now that they’ve rounded up a few fall guys to blame it all on. China will be dumping their dollars as soon as they recover from their real estate crash, reverse their stock market crash, clean up the decimation of their fresh water supplies and farm land, detoxify the air they breath, and grow their way into a position where they can pay off all the trillions in debt — once demand for their products picks up which is likely to be never. The Chinese are well on their way to achieving these lofty goals. We just don’t realize it yet because, you know, MSM and evil America and all — or something like that.
shortonoil on Mon, 13th Jul 2015 7:33 am
“Saudi Arabia needs an oil price of $105 a barrel to meet planned spending requirements, but the average price for the year is estimated at $58 a barrel, he said.”
If the best oil fields in the world can not continue to operate at today’s price (WTI $53) that does not bode well for the rest of the world’s producers. As we have been stating the oil age ends not for a lack of oil, it ends when producers can no longer make a profit producing it. Simply put, it ends when the economy can no longer afford to pay a price that covers its cost of production.
The industry has only one option; increase debt! Saudi Arabia will liquidate its reserves, EXXON will borrow more money from J.P. Morgan, Greece will run out of food, and medical supplies, and Venezuela will run out of toilet paper. The energy needed to produce petroleum, and its products must come at any expense. The oil will continue to flow regardless of what must be sacrificed.
We have now entered the cannibalization stage. The point where society must now consume its own infrastructure to survive. The price of oil is not high enough to replace reserves, or essential equipment. Fields will be pumped until it is no longer economically viable to work them, and equipment will be used until it can no longer can be repaired.
Depletion is now beginning to take its last victim; the immense wealth that was accumulated from oil’s rampant consumption. It will feed on the carcass of civilization until only the sun bleached bones of a technological miracle remain. The bill for ignoring it is at last coming due; and it will come due with interest!
http://www.thehillsgroup.org/
BobInget on Mon, 13th Jul 2015 8:40 am
I don’t disagree with Shortonoil one bit.
Hastening to add, the most wasteful use of the finite commodity must be waging modern highly mechanized warfare.
No wonder Saudi Arabia today announced PRODUCTION level increases. Mind, higher production for KSA at these levels most certainly do not indicate more EXPORTS.
Raising production undoubtedly endangers
older fields by upping water-cut.
Bloomberg:
Saudi Arabia told OPEC it raised oil production to a record as the organization forecast stronger demand for its members’ crude in 2016.
The world’s biggest oil exporter pumped 10.564 million barrels a day in June, exceeding a previous record set in 1980, according to data the kingdom submitted to the Organization of Petroleum Exporting Countries. The group sees “a more balanced market” in 2016 as demand for its crude strengths and supply elsewhere falters.
BobInget on Mon, 13th Jul 2015 9:12 am
http://www.ft.com/intl/cms/s/0/25c7fa98-2947-11e5-8613-e7aedbb7bdb7.html#axzz3fmPpMTzh
Greater detail on Saudi ‘go for broke’ strategy.
all I gotta say, “some oil cartel”
Opec lowered its estimate for demand for its crude this year by 100,000 b/d to 29.2m b/d. It expects higher demand next year of 30.1m b/d, but that is still more than 1m barrels below current output. (30 excerpt)
Here-in lies.
OPEC, Lowers 2015 consumption ests.
With the other hand raises production “to meet increased demand”.
Kenz300 on Mon, 13th Jul 2015 9:43 am
Countries in the Middle East and North Africa need to cut their subsidies for oil and gas. They have artificially increased internal demand.
They hurt their budgets and they encourage wasteful use.
steve on Mon, 13th Jul 2015 11:47 am
I smell a rat in this story! The numbers don’t add up 4 billion that is nothing in todays numbers…or for SA…they give that twice that much in aide to Africa in a year! Folks you can’t believe everything you read in this day and age even if it fits your meme!
steve on Mon, 13th Jul 2015 11:50 am
sorry now I have to go and click on the banner on the left on how I can buy the God vitamin and live forever!!!
shortonoil on Mon, 13th Jul 2015 2:53 pm
“I smell a rat in this story!”
Fahad al-Mubarak
http://www.arabianbusiness.com/people/fahad-al-mubarak-507834.html
We would too if we hadn’t been expecting something like this. Pehaps not SA, but some NOC was expected to go begging to keep the natives from getting restless. Keeping the unhappy populous from blowing up your pipe lines, and burning down the NG plants is a cost of producing oil. It is what we call “Societal Cost” and it is huge. It is usually the cost that EXXON leaves off its P&L statement; but that does not mean that it isn’t real! There are a lot more costs to producing oil than just drilling a few holes in the ground.
http://www.thehillsgroup.org/