The Kingdom of Saudi Arabia has announced that it plans to issue international bonds in order to fund its budget deficit, which is expected to reach up to 4% of GDP in 2023.
This marks a reversal from recent years, when the country had run a budget surplus and even started paying off some of its outstanding debt.
However, a combination of lower oil prices and increased spending has led to a return of the deficit. The size of the bond issuance has not yet been announced, but it is expected to be in the billions of dollars.
The decision to issue bonds comes at a time when global interest rates are rising, which could make the borrowing more expensive for Saudi Arabia.
However, the country's strong credit rating and large foreign currency reserves are expected to help it secure favorable terms. The bond issuance is also a sign of Saudi Arabia's increasing financial independence, as it looks to reduce its reliance on oil revenues.
The kingdom is in the midst of a major economic transformation, known as Vision 2030, which aims to diversify its economy and attract foreign investment.
Although Saudi Arabia has been running budget surpluses in recent years, the country has been tapping into its reserves to fund its ambitious development plans.
The Vision 2030 plan calls for $1.5 trillion in investments over the next decade, and the kingdom has already started work on megaprojects such as the NEOM city and the Red Sea tourism project. The increased spending, combined with lower oil prices, has led to the return of the budget deficit.
It remains to be seen how long the deficit will persist and whether the bond issuance will be sufficient to cover the shortfall.
Some analysts have raised concerns about the sustainability of Saudi Arabia's development plans, given the uncertainty of oil prices and the high cost of some of the projects. However, the kingdom's strong financial position and high levels of reserves give it some breathing room to weather economic shocks.
In addition, the country has a track record of fiscal discipline, and has managed to keep its debt levels low compared to other countries.
Still, the return of the budget deficit is a reminder of the volatility of oil prices and the need for diversification.