Saudi Arabia’s Jump in Debt Exceeds Even Era of Negative Oil
(Bloomberg) -- Saudi Arabia’s debt levels jumped the most on record in the first quarter after the government revealed more borrowing in the private markets.
The country’s net indebtedness rose by about $30 billion, according to a statement from the Ministry of Finance. That’s even more than at the height of the coronavirus pandemic in 2020, when oil prices briefly turned negative.
Domestic borrowing increased by $16 billion, with about $13 billion coming from private placements that had not formerly been announced. On top of that, more than $14 billion was raised from international debt sales.
Private debt deals help the finance ministry manage supply in the market, expand its investor base and take advantage of market opportunities, a spokesperson for the National Debt Management Center said in a statement.
The spokesperson didn’t give details on who the investors were.
Saudi Arabia’s rising debt levels come at a critical time for the kingdom, with Crown Prince Mohammed bin Salman due to host US President Donald Trump next week. The American leader will be seeking $1 trillion of investment from Riyadh — a task that appears increasingly complicated given Saudi Arabia’s growing budget deficit and indebtedness.
Governments around the world often issue debt in both public and private bond markets. Deals of the latter type tend to be quicker to issue, though they’re usually sold to just a few investors and thus can be smaller than public bonds.
Saudi Arabia has ramped up borrowing in the past three years as oil prices have fallen and the government maintains high spending to fund the crown prince’s mega projects, including the new city of Neom. In the first quarter, the kingdom posted its highest fiscal deficit since 2021.
Still, Saudi Arabia’s total debt stands at $354 billion, only around 30% of gross domestic product and low by the standards of most other governments. In addition, the government’s borrowing jumped as it refrained from tapping its more than $400 billion of foreign reserves. Those are crucial to the kingdom’s ability to defend the riyal’s peg to the dollar.
Previously, the highest quarterly jump in debt levels was in the second quarter of 2020, when borrowing rose by about $26 billion.
With oil prices having slumped around 20% since the end of March, the government may have to continue borrowing heavily over the rest of the year.
The increase in debt in the first quarter “more than finances the budgeted annual deficit,” said Justin Alexander, director of Khalij Economics and an analyst for consultant GlobalSource Partners. “But, in reality, a similar amount of net issuance will likely be needed during the remainder of the year.”
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