Saudi Arabia has issued its first sovereign bonds since 2007 to cover a budget deficit created by low oil prices, launching a series of debt sales that could reshape its financial markets. The government sold SAR15bn ($4 billion) of bonds to local banks this year, marking a big shift in Saudi policy. Until this year, the world’s top oil exporter focused on paying down its public debt, which totaled just 44 billion riyals at the end of 2014, about 1.6 percent of gross domestic product. While a few state agencies or state-controlled firms have issued bonds in the past few years, the government’s last sovereign development bond was issued in 2007.But because of the plunge in oil prices since June 2014, Riyadh faces a huge budget gap this year, which was expected to exceed the originally projected 145 billion riyals. The International Monetary Fund has estimated the deficit will be about 20 percent of GDP, or approximately $150 billion. So far Riyadh has mainly been running down its financial reserves to cover the deficit; Mubarak said the government had withdrawn 244 billion riyals from reserves in 2015.This has cut the foreign assets held by the central bank, which is the kingdom’s sovereign wealth fund. It’s net foreign assets mostly US dollar bank deposits and bonds fell to $672 billion in May. The start of Saudi bond sales means pressure for the reserves to fall may now decrease. It is expected to witness increased borrowing in the coming months, the deficit would be financed by both reserve draw downs and bond issues.
