Banks back Saudi Arabia despite Doha

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International banks are signalling their confidence in the future of the Saudi Arabian economy by subscribing heavily to a $10bn loan being raised by the kingdom.

The deal will be for five years and is by far the largest sovereign borrowing ever attempted by a Middle East country.

It is the first international borrowing by Saudi Arabia for 25 years.

“The landmark five-year loan, a signal of Riyadh’s newfound dependence on foreign capital, opens the way for Saudi to launch its first international bond issue,” The Financial Times reported on 19 April.

The Financial Times reported there was strong interest in the loan, particularly from Asian banks. This allowed the Saudi government to increase the amount it aimed to borrow from $6bn-8bn.

“The deal is very successful, with very competitive pricing,” the Financial Times reported Elyas Algaseer, deputy regional general manager at Bank of Tokyo-Mitsubishi, as saying. “There was immense market appetite.”

Saudi government expects to record a record budget deficit in 2016. The balance of payments is also forecast to move into deficit on lower oil prices.

However, the kingdom has official reserves of more than $600bn and almost no international debt. The recent rise in oil prices, which have increased by more than 60 per cent since the middle of January, coupled with an increase in the kingdom’s oil production have increased confidence in Riyadh’s capacity to manage the sharp slump in government income and exports since oil started tumbling in the summer of 2014.