Saudi finance minister: Local bond issues likely to resume in Q1

Saudi Arabia expects to resume monthly domestic bond sales in the first quarter of 2017 but will ensure private sector borrowing is not crowded out or banking system liquidity strained, finance minister Mohammed al-Jadaan said on Thursday.

Jadaan was speaking to Reuters after the government released a budget plan that envisions cutting the deficit to 198 billion riyals next year from SAR 297 billion in 2016. He said local issues would resume soon but that authorities no longer felt such an urgent need to raise money domestically.

“We are likely to go to the local market within the first quarter and we are likely to go on a monthly basis, but that also depends on the liquidity of the system,” said Jadaan, who took office last month. “We have a very limited deficit this time so our needs are limited and we have a cushion... Generally yes, we will need to go to the local markets and we will make sure that we don't crowd out the private sector.”

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The government began issuing local currency bonds last year, offering about 20 billion riyals ($5.3 billion) to banks every month, to help cover a budget deficit caused by low oil prices. But the issues absorbed so much money that they pushed domestic money market rates up sharply, threatening to damage the economy.

Domestic issuance was suspended after Saudi Arabia’s first international bond sale raised $17.5 billion in October and Riyadh has not sold local bonds since September. The government also plans to tap international debt markets again next year to finance its deficit, Jadaan said, and it is expected to continue drawing down its foreign assets, though at a slower rate than this year.

Jadaan said the government had paid 100 billion riyals to the private sector over the last two months, and expected to pay an additional 30 billion riyals of claims that it would receive soon. “We are committed to pay everybody within 60 days of the due date of the payment,” he said, adding that the problem of payment delays would not reoccur in 2017. “I promised we will pay within 60 days - we made that promise officially today and we will keep it.”