New Delhi: Faced with an unprecedented economic crunch over its dipping oil revenues, Saudi Arabia has reached an agreement with foreign banks for a $10 billion (Rs 66,200 crore) loan to bridge the gap in its state finances, a media report citing people privy to the developments said today.
The sovereign loan will be the kingdom’s first in 15 years, three people in the know told Bloomberg. According to the report citing unnamed sources, the five-year loan is expected to be signed by the end of this month.
Banks from U.S., Europe, Japan and China are lending the funds at about 120 basis points above the London interbank offered rate, the report said, adding that Saudi Arabia’s initial request for as much as $8 billion was significantly oversubscribed, allowing the country to increase the size of the deal.
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Prices of crude oil have seen a major slump in the past two years globally. Prices have dipped from more than $100 a barrel in early 2014 to around $40 this month. The sharp decline has placed Suadi Arabia is a severe financial crunch, forcing it to cut spending and to intensify its efforts to find economic alternatives.
The country posted a record budget deficit of $98 billion in 2015 and projects an $87 billion shortfall for this year. This huge gap has been covered by the kingdom's significant fiscal reserves, which dropped to $611.9 billion at the end of 2015 from $732 billion a year before, Saudi Arabia's Jadwa Investment said in a February report.
Saudi Arabia is set to announce its "vision" for future social and economic development on Monday. This will include a "National Transformation Programme" aimed at diversifying the economy away from oil, which still accounts for more than 70 percent of state revenues.
Earlier this month, credit rating agency Fitch downgraded Riyadh to AA- from AA due to the "major negative implications" of the plunge in oil prices.
(With agencies)
