Saudi Arabia has raised $17.5bn (£14bn) from its first foray into the global bond markets as it seeks to repair the damage to its public finances caused by the collapse in the oil price since 2014.
Strong investor demand meant the Middle Eastern kingdom raised more from the bond sale than had been anticipated, beating the previous record set by Argentina for an issuance by an emerging market country.
Riyadh will use the money raised to reduce a budget deficit on course to be well in excess of 10% of gross domestic product this year and to broaden the economy so that it is less dependent on oil.
Saudi Arabia – along with other oil-producing countries – was caught unawares by the fall in crude from $115 a barrel in the summer of 2014 to a low of under $30 a barrel at the end of 2015. Despite the subsequent rally to just over $50 a barrel, the oil price is still too low to balance the country’s budget.
Eirini Tsekeridou, fixed income analyst at Julius Baer, said: “The sharp drop in oil prices has caused Gulf Cooperation Council (GCC) countries to run into deficits. In an effort to fill the state coffers in the short term, the GCC countries are implementing government spending cuts and VAT increases but also raising debt.
“In its national transformation plan, [Saudi Arabia] has also outlined additional measures that would lessen the economy’s dependence on oil revenues, but these would take time to bring the desired results and reverse the deterioration of its foreign exchange reserves.”
The rating agency Standard & Poor said: “The region’s funding requirement has been mounting since 2015, when the drop in oil-related revenue turned fiscal surpluses into deficits, although these differ among the sovereigns in scale and duration. We estimate that, in nominal terms, GCC sovereigns’ combined fiscal deficit will reach $150bn (12.8% of combined GDP) in 2016 alone.
“We forecast that the cumulative funding requirement could be as high as $560bn between 2015 and 2019. The resulting imbalances and their likely impact have been central to our view of a significant deterioration in the region’s creditworthiness over the past 18 months.”
