Low oil prices affecting Saudi Arabia's debt market

By Jess Shanahan

Historically, one of the key strengths of the Saudi economy has been its almost total absence of debt, with outstanding public debt sitting at below five percent of gross domestic product – one of the best ratios in the world.

However, recent news reports suggest the government is in discussions for an international loan in its first significant foreign borrowing for more than a decade. Ratings agency Standards & Poor’s estimates that the Kingdom will issue up to $31 billion in debt in 2016, as it strives to manage the fiscal deficit caused by the fall in oil prices.

The oil prices are affecting the region as a whole but it’s also having an effect on businesses too. Many companies are also reviewing their debt options, looking to ensure they have sufficient liquidity as the economy goes through a turbulent period. This change in direction raises challenges for Saudi Arabia, but also opens significant opportunities for the financial sector.

Richard F. Lacaille, Global Chief Investment Officer of State Street Global Advisors said: “We believe we will see a sixth year of below-average global growth in 2016 as well as modest returns from risk assets in the absence of a ‘consumer of last resort’ and the waning ability of central banks to boost asset prices. As a result, investors will need to eke out extra returns through insightful investment strategies.

“While valuations in some emerging markets look attractive, investors will continue to focus on real signs of economic and political reform, strong corporate governance and returns potentially less correlated with macro risks.  With potentially transformative changes underway in the region, we think the Middle East in general and Saudi Arabia in particular may offer attractive investment opportunities.”

A special panel discussion at the 2016 Euromoney Saudi Arabia Conference, which takes place from 3-4 May in Riyadh, will examine the future of the KSA debt market, with a particular focus on the viability of loans versus bonds in the current period, as well as a review of concerns over tightening liquidity. 

Richard Banks, Consulting Editor of Euromoney Conferences and Managing Director of RMBanks & Co. Ltd, said: “The emergence of debt as a factor in the direction of the Kingdom’s economy and financial sector is a development of historic proportions, and one which will have major implications for banks and global lenders.”

“By bringing together representatives of major global banks with leaders from many of Saudi Arabia’s most prominent organisations, the Euromoney Saudi Arabia conference provides an important platform to discuss the challenges and opportunities of the current period.”

Follow @BusinessRevME 

Share

Featured Articles

Top 10 most innovative telecom operators in the Middle East

With Dubai-based Telecoms World Middle East in full swing, we chart the most innovative telcos from the region – and look at how they are transforming

Top 10 fastest-growing Indian companies in the UK

Business Chief takes a look at the top 10 fastest-growing Indian companies in the UK, according to the India Meets Britain Tracker from Grant Thornton

Top 10 workplaces prioritising people and planet in the UAE

Sustainable, flexible, collaborative, tech-driven, and amenities-rich, the office of the future considers both people and planet – here are 10 in the UAE

Top 10 female HR execs leading Saudi’s workplace transition

Leadership & Strategy

Top 10 largest asset managers by AUM operating in the UAE

Corporate Finance

Top 10 female CEOs leading Africa’s biggest businesses

Leadership & Strategy