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Friday, 04 November 2016

Sizeable Foreign Assets ‘to Support Riyal-dollar Peg’

JEDDAH (Arab News) - Analysts at Bank of America Merrill Lynch expect the riyal-US dollar peg to hold given the still sizeable foreign

assets and the Kingdom’s experience with implementing multi-year fiscal adjustments.
“We expect energy policy to shift toward putting a floor under oil prices,” Jean-Michel Saliba of Bank of America Merrill Lynch commented in an analysis issued after Saudi Arabia raised $17.5 billion in the biggest bond sale ever by an Emerging Market country.
The government raised more funds, and at the relatively tighter end of the pricing range. This is unlikely to be a one-off and we expect regular, large, external issuance in 2017, the monthly report added.
The external bond sale should allow lower domestic bond sales over next two to three months or so, according to the report.
Nearly all of the bonds placed this year domestically were bought by domestic banks. So, as long as external bond issuance acts as a substitute to domestic bond issuance, it should help to gradually ease domestic liquidity and have a positive knock-on effect on Saudi rates, said the report.
This would be particularly the case if the government starts repaying its arrears to contractors, it said.
The Bank of America Merrill Lynch report added: “According to Bloomberg, some contractors were told 30 percent-40 percent of the outstanding dues would be paid by year-end, with the remainder to be settled in 2017. We have estimated the range of unpaid capex for 2015 to be SR23 billion-SR100 billion ($6 billion-$27 billion or 1- 4.3 percent of 2015 GDP).