Until 2014 and the crash in revenues from oil, the Kingdom had run a budget surplus for most of the previous decade. Falling energy revenues raised the need to fund the resulting deficit.
It should be stressed that Saudi Arabia does not have to go to international capital markets. It has enormous capital reserves built up over the oil price boom years, amounting to $482 billion last October.
But, in an era of historically low global interest rates, it makes sense to tap credit markets for comparatively cheap debt. With the US Federal Reserve set to raise rates this year, it makes even more sense to issue debt early in 2018.
But even if Saudi Arabia does go for the $20 billion of bonds forecast by BoAML, debt will still remain a comparatively small part of the Kingdom’s fiscal requirement.
Valuations are tight for Kuwait, Abu Dhabi and Dubai, which may need to boost borrowing for Expo 2020 in the year ahead.
The coming year is also expected to see the beginning of the planned $200 billion worth of privatization of state-owned assets, as well as the launch of the initial public offering of Saudi Aramco.
This could rise up to $100 billion if 5 percent is sold on international markets, but even a smaller amount on domestic markets — say 1 percent on the Tadawul — would raise as much money for the public exchequer as the whole of the global bond program.
A successful bond program in 2018 would also help gauge the global investor attitude for Saudi assets, which would be a crucial factor in pricing the Aramco IPO.
- Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai