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Saudi banking sector liquidity improves after sovereign bond issue

While debt issuance has improved liquidity, the overall public debt has more than doubled in 2016

Gulf News

Dubai: The successful $17.5 billion (Dh64.2 billion) sovereign bond issue by Saudi Arabia last month has contributed to easier liquidity condition in the domestic banking system.

While the monetary survey data for October is not yet available, it seems likely that at least a portion of the bond proceeds have been transferred to the domestic banking system, with both government and private sector deposits likely to have increased over the last few weeks. The government has also started paying contractors, with local press reporting around 40 billion Saudi riyals (Dh39.13 billion) of outstanding payments had been made by 20 November. Another 100 billion riyals of delayed payments is expected to be made by year-end.

As a result of the likely increase in bank deposits, the 3-month interbank rate has declined for the last two weeks, even as US dollar rates have continued to rise. The narrowing spread reflects the easier liquidity conditions in the Kingdom.

While the latest round of debt issuance has improved liquidity, the overall public debt has more than doubled in 2016.

“We estimate that Saudi Arabia’s stock of public debt has increased by 223 billion riyals ($59.5 billion) year-to-date. While 120 billion riyals was through domestic bonds while the balance was raised through a syndicated loan and the sovereign bond. We estimate public debt to GDP has increased to just over 15 per cent of GDP this year, from under 6 per cent in 2015,” said Khatija Haque, Head of MENA Research at Emirates NBD.

Analysts expect the 2017 budget deficit to narrow as oil prices rise modestly and spending remains relatively constrained. As a result, the borrowing requirement is likely to be lower, and we forecast the government debt/ GDP ratio rising by less than three percentage points to 17.6 per cent of GDP.