Saudi Arabia to accelerate bond plan in 1H 2015

Saudi Arabia is set to accelerate its bond issuance programme in the second half of 2015, as the kingdom faces a potential $130 billion deficit this year, equivalent to about 20 percent of economic output.

Reports quoted sources in the banking community suggesting that the Saudi government plans to issue between SR90-100 billion ($24-27 billion) in the remaining five months of the year.

The reports said that this would equate to between SR15 billion and SR20 billion ($4-5.3 billion) a month, with tenors of five, seven and ten years.

Highly liquid Saudi banks are expected to be the main purchasers of the bonds, according to Arab News.

The kingdom's central bank, the Saudi Arabian Monetary Authority (SAMA) has already issued $4bn worth of bonds in the first half of this year but the abrupt increase in the bond-selling programme is a major indicator of the effect the continuing low oil price is having on the Arab world's largest economy.

The programme is planned to partially offset Saudi Arabia's fast-declining foreign currency reserves, on which the kingdom is drawing to keep public spending at an appropriate level.

Saudi Arabia announced in December that it had increased its annual budget for 2015 to $229 billion, a 0.6 percent rise on the previous year. A fall in revenues, largely due to the drop in the oil price, means that the government has projected a $39 billion budget deficit for this year.

However, the International Monetary Fund (IMF) thinks that the budget deficit could balloon to $130 billion in 2015, and has warned that Saudi Arabia will need "a sizeable fiscal consolidation" in the coming years. From a high of around $737 billion last year, the Gulf state now has $672 billion held as foreign exchange reserves.

In March and April alone, foreign reserves dropped by $31 billion, according to a report from Jadwa Research.

Saudi Arabia has one of the lowest rates of government debt for any large economy, at around 1.6 percent of GDP as of the end of last year, according to the IMF.