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Saudi Arabia Begins New Bond Sale to Plug Budget Deficit

Saudi Arabia has mandated banks to arrange the placing of three-part bonds as the world’s largest crude oil exporter is looking to raise more money to plug a budget deficit and fund its program to diversify from oil.

The Saudis have mandated banks to help it sell three-, six- and 10-year notes, which could yield 85-110 basis points more than comparable U.S. Treasuries, an anonymous source with knowledge of the matter told Bloomberg on Tuesday.

The latest bond sale from Saudi Arabia would come a few months after the Kingdom tapped the debt market in January 2024 by selling $12 billion worth of U.S. dollar bonds in what was its biggest debt issuance in nearly six years.

Back in January, Saudi Arabia sold bonds due in 2030, 2034, and 2054, which attracted $30 billion worth of orders from investors. 

While Saudi Arabia is looking to raise more money for its flagship Vision 2030 projects, it is also trying to prevent its economy from overheating and driving inflation higher as it aims to boost growth in its non-oil sector.

If Saudi Arabia doesn’t allow its economy to catch up with its billions-dollar-priced huge investment projects, it may end up lacking the manufacturing and other capacity to support its plans, Saudi Finance Minister Mohammed Al-Jadaan said earlier this month.

The non-oil sector and government activities grew in the first quarter of 2024, but a 10.6% decline in oil activities – as the Saudis are limiting oil production at 9 million barrels per day (bpd) – dragged down the Kingdom’s GDP by 1.8% compared to the same period of 2023, Saudi Arabia’s General Authority for Statistics said earlier this month. This decrease was primarily driven by a 10.6% decline in oil activities. At the same time, non-oil activities increased by 2.8%, and government activities grew by 2.0% on an annual basis in Q1 2024.

Saudi Arabia, however, booked a budget deficit in Q1 2024, due to rising expenditures which outpaced government revenues.

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By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on May 28 2024 said:
    Saudi Arabia has been making great strides in the diversification of its economy in accordance with Crown Prince Mohammed bin Salman's Saudi Vision 2030. But to continue fulfilling this vision it needs increasing funds and investments.

    Saudi oil revenue is hardly growing because of relatively subdued oil prices and declining production, hence the need for new bond sale to plug budget deficit and fund its programme to diversify from oil.

    That is why the Saudis have mandated banks to help them sell three-, six- and 10-year notes, which could yield far more than than comparable U.S. Treasuries.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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