As you probably know, oil prices are far from being as high as they used to be a couple of years ago. With that being sad, oil exporters start facing major economic and financial challenges. Even Saudi Arabia, which is one of the biggest oil exporters, now has to look for external loans.
The thing is that Saudi Arabia, OPEC’ key oil exporter, is now having a hard time balancing its budget due to ultra-low oil prices seen for over 1,5 years already. For those of you who don’t know, oil export makes up for 73% of the country’s budget financing. While the local authorities now have to cut the public spending, they also cannot do without external loans anymore, Masterforex-V Academy reports.
More and more financial media report that several international banks are now competing fro the privilege of becoming the underwriters of the forthcoming deal. It should be noted that last year Saudi Arabia issued bonds in the domestic market for the first time since 2007. Those bonds were denominated in the local currency. Local banks purchased those bonds to the amount equal to $4 billion. The domestic bonds are cheap which is why the authorities are planning to issue dollar bonds to extend the pool of lenders. Some experts predict that Saudi Arabia may issue $5 billion in dollar bonds. The emission may well be divided into several tranches. Still, other experts doubt that this emission is going to save the day for Saudi Arabia in terms of balancing its budget. At the same time, more investors are skeptical about the country’s ability to service its debt.
Some European bankers say that the SA bond yield is going to be over 3%. At the same time, the local authorities say that SA’s budget deficit may increase from 1,6% GDP ($11,7 billion) all the way up to 50% of GDP in 2020.
Experts say that the details of issuing SA bonds will depend on 3 factors: oil prices, market volatility, and the country’s financial reserves. For those of you who don’t know, SA’s reserves have been diminishing since early 2015. As of February 2015, they were equal to $737 billion while in late 2015 they shrank all the way down to $640 billion.
At the same time, Masterforex-V Academy experts believe that all of that increases the risks for Saudi Arabia. If the situation continues, we may well see Saudi Arabia unpeg its national currency from the U.S. Dollar. We remind you that Azerbaijan was one of the first oil exporters to unpeg its national currency from the U.S. Dollar after the local economy couldn’t survive the oil market crash and the local authorities had to let the national currency devalue in late 2015.
