Saudi government starts borrowing money after oil prices slide
Saudi Arabia has borrowed $4 billion from local banks in the past year by selling its first bonds in eight years to cover a budget deficit created by low oil prices, Sputnik reported.
Fahad al-Mubarak, the governor of the Saudi Arabian Monetary Agency, said the government will use a combination of bonds and reserves to maintain spending and cover a deficit that will be larger than expected, about $130 billion this year.
"We expect to see an increase in borrowing," he was quoted as saying by the economic daily Al-Eqtisadiah newspaper over the weekend.
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.
To sustain spending, the government has been dipping into its foreign reserves, which were at $672 billion in May, down from their August peak of $737 billion.
"Reality is hitting home, and necessity is also hitting home," John Sfakianakis, director for the Gulf region at Ashmore, a fund manager, told Financial Times.
The sale of domestic bonds should ease the rate of drawdown on Sama's overseas assets.
"Issuance at this stage is intended to reach two goals: create alternative sources of revenue, but also reinvigorate the debt market," said Sfakianakis.