Saudi bond issuances better than draining reserves: NCB economist

Saudi Arabia would be better off issuing domestic sovereign debts to finance its budget deficit and maintain growth rather than drawing down its foreign currency reserves, Said Al-Shaikh, group chief economist at National Commercial Bank (NCB), was quoted as saying in Alriyadh newspaper.

The kingdom is expected to see a budget deficit of SAR 320 billon higher rather than the previously expected SAR 145 billion, Al-Shaikh said, according to a study conducted by NCB.

He said the state can draw on a total cash of SAR 480 billion, of which SAR 50 billion are held as bank reserves at the Saudi Arabian Monetary Agency (SAMA), the kingdom’s central bank. In addition, there are SAR 220 billion worth of treasury notes and SAR 210 billion in foreign investments by banks.

Oil exporters, especially the members of the Organization of the Petroleum Exporting Countries (OPEC), should agree to cut output, in a move that is seen essential for market stability and “reasonable prices,” Al-Shaikh added.

Argaam earlier reported than the kingdom is planning $27 billion of new domestic bond issuances by year-end, in an attempt to fuel its fiscal deficits by burning through foreign exchange.

Last week, the International Monetary Fund (IMF) cut its forecast for the Saudi economic growth to 2.8 percent this year, down 0.2 percentage points from its previous estimate of three percent this year.

The country has four years of foreign exchange reserves remaining, according to IMF figures, and relies on an oil price of $105 per barrel to keep its budget balanced.