JEDDAH, 10 August 2005 — Economy and Planning Minister Khaled Al-Gosaibi has rejected proposals by Saudi and foreign economists to set up a market for government bonds, saying it would lead to further increasing public debts.
“The creation of a market for government bonds for the issuance and transaction of new government bonds means additional government borrowings,” Al-Madinah Arabic daily quoted him as saying. “What we are discussing now is payment of present public debts. The government borrowed money due to exceptional circumstances and its present trend is to reduce public debts to the minimum, not to increase them,” he added.
Custodian of the Two Holy Mosques King Abdullah has instructed authorities to set aside the lion’s share of the Kingdom’s budget surplus from surging oil prices for the payment of debts.
Last year, Finance Minister Dr. Ibrahim Al-Assaf said the government would use this year’s budget surplus to repay some of the public debt estimated at SR660 billion ($176 billion). The minister did not specify how much money would be allocated for the purpose. Al-Assaf said the Kingdom’s public debt had reached SR660 billion according to figures issued in 2003. “Payment of public debts gives the state greater flexibility to spend on development projects,” he told reporters.
Al-Gosaibi said the government had a strategy to bring public debt to acceptable levels and has developed mechanisms to achieve budgetary balance and stability.
He said the proposed market would affect the value of government bonds as they would be exposed to internal and external fluctuations including variations in interest rates. He said it would also affect government borrowings and weaken public confidence in bonds. “Most Saudis do not like to deal with bonds having interest rates. As a result, the circulation of these bonds will be limited,” he pointed out.
On the other hand, the Ministry of Economy and Planning recommended establishment of a fund to achieve a balance between public revenues and expenditures and cut public debts.
The minister also refuted the arguments of those who support a government bonds market. He said the present system would increase banking investment in private bonds and strengthen the private sector.
Bank investments in private bonds were estimated at 4.8 percent of their investments in government bonds in 2004, he said. The payment of part of public debts will lead to reducing the pressure on the public sector and will have a positive effect on the national economy, he pointed out.