Selling Debt
The government of Saudi Arabia has sold billions of dollars in domestic bonds. In the fourth quarter of 2016, the country raised $17.5 billion. Earlier this year, the country issued nine billion dollars in Islamic bonds. Although interest rates have continued to rise, the government of Saudi Arabia has used debt financing to address its budget deficit and attract foreign direct investment. Here’s a look at why the Saudis have sold debt. A rising interest rate may discourage some investors.
The selling debt by the Saudis comes amid a sweeping socio-economic change in the kingdom. The kingdom’s 32-year-old crown prince is overseeing a wide-ranging effort to modernize the country and open up its economy to foreign investors. The latest bond offering comes on the heels of the government’s decision to lift the ban on women driving, a move that is expected to increase the number of Saudi women in the domestic workplace.
But Saudi Arabia isn’t the only country in the world to sell debt. The government of Bahrain and Oman recently bowed out $30bn in 30-year notes. These deals show that the Middle East is trying to get out from under the pressure of the oil price and Covid. However, some analysts say the Saudis are being reckless by selling their US assets. In addition, higher oil prices would push up the yields on Treasury bonds and impact the Saudis’ portfolio.
Why is Saudi Arabia Selling Debt?
However, the Saudis are also trying to improve their domestic business. A recent sale of $20bn of bonds in the international markets may be a good idea. This is a sign of confidence in the future of the Middle East. But the question remains whether the sales are the right move for the country’s economy. While oil prices remain depressed, a high interest rate is a bad idea for most Middle Eastern countries.
Although the Saudis are trying to reduce the price of oil, they are also trying to sell their debt to save money. But it’s not a wise idea to sell their US assets, as they may have to pay higher interest rates or risk losing their investments altogether. But, it’s unlikely that they will dump the entire debt. The lower-rated Middle Eastern issuers have suffered because of Covid and oil price.
In contrast, the US’s new debt is a good thing. It means the Saudis have a much better credit rating than the average Middle Eastern country. While a higher credit rating can help you get a loan, it may make you more liable for bad debt. In addition, the Saudi government is still unable to pay back its new bonds. A looming debt crisis could affect the country’s long-term stability.