Boosted by bond success, Riyadh starts debt repayments

Saudi Arabian Finance Minister Ibrahim al-Assaf

The Saudi Arabian government is acting to pay off hundreds of millions of dollars owed to suppliers for months following the successful sale of $17.5bn worth of the kingdom’s first sovereign bonds to international investors.

Finance Minister Ibrahim Al-Assaf said in a televised interview on MBC on Wednesday that payments have been “regularised and will rise in the coming period.”

Sources in Saudi Arabia say the government has started paying some major builders as well as companies outside the construction industry.

Companies have been told 30-40 per cent of the outstanding dues will be paid before the end of the year, with the remainder to be settled in 2017.

Repayment of debts will allow companies to repay amounts borrowed from Saudi banks and help reduce pressure on Saudi riyal liquidity which has doubled riyal interest rates since the end of last year.

This will also enable Saudi banks to lend to new borrowers.

Saudi banks reported lower third quarter profits. This was partly caused by rising non-performing loans, evidence of stress in the Saudi economy caused by public spending cuts and higher energy and water prices since the start of this year.

The success of the sovereign bond clears the way for further Saudi government borrowing.  The IMF said in a report about the Saudi economy last week that the kingdom could sustainably borrow up to $120bn from non-resident investors in 2016-21 to finance projected budget deficits.

The IMF said the Saudi government would need $389bn in financing in the next five years unless there are radical changes in government spending and income.

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