Saudi Arabia's Al Tuwaijri Talks Bonds, Budget and Big Spending

  • Key points from an interview with Mohammed Al Tuwaijri
  • Four ’low-hanging fruit’ privatizations to start this year

Saudi Arabia’s vice minister of economy and planning, Mohammed Al Tuwaijri, spoke to Bloomberg News on Tuesday about the government’s borrowing plans, infrastructure spending and how the kingdom still intends to balance its budget by 2020.

Here are the key points from Al Tuwaijri, who is also the head of the finance committee at Saudi Arabia’s powerful Council of Economic and Development Affairs, known as CEDA.

Upcoming Bond Sales:

  • Asked when the kingdom will sell international bonds again, Al Tuwaijri said that the finance ministry’s debt management office may decide to tap the market in the fourth quarter this year. The size of the issuance will depend on market conditions and investor appetite but could potentially be as much as $10 billion, he said.
  • When Saudi Arabia sold its first dollar-denominated sukuk in April, it planned to raise only $5 billion. The sale raised $9 billion because is had an "oversubscribed book with a lot of strategic investors who wanted more," he said.
  • Domestically, the government still plans to raise about 70 billion riyals this year. "We believe actually the banks are pretty liquid nowadays and their ability to invest in government bonds is good," he said.

Balancing the Budget:

  • "We are still comfortable and committed to balancing the budget in 2020," Al Tuwaijri said. The fiscal scenario shared during last year’s budget announcement was based on executing "a good percentage" of the government’s reform plans "with oil stabilizing at current levels," he said.
  • Last year, when the government was discussing ways it could save money, state employee allowances and benefits were identified as "one of the top 10 items that we can switch off," he said. Those cuts were reversed last month after the government found "a good rationalization that we should give it back to the market," Al Tuwaijri said.
  • The return of the allowances won’t affect the government’s plan to balance its budget. He said the reversal could potentially be financed through local bond sales.

Four Privatizations to Start With:

  • The government surveyed the market to identify suitable targets and made a list of 16 entities that are prime for privatization, along with more than 100 public-private partnership opportunities.
  • Four "low hanging fruits" will start the privatization process potentially this year: the Saline Water Conversion Corporation, a power generation company under Saudi Electricity Co., grain silos and sports clubs.
  • "These are in a very, very advanced stage, not only financial advisers hired, but we have appetite secured," Al Tuwaijri said. The size of the desalination privatization and the power generation company are each "in the billions of dollars," he said.
  • Eventually, four power generation companies under Saudi Electricity Co. will be sold. "We’re selling one this year and then every year also we’ll sell another one," Al Tuwaijri said. The timing will ultimately depend on factors like market appetite.

Spending on Infrastructure:

  • The government is "very committed" to mega projects that would help achieve the objectives of Vision 2030, its blueprint for life after oil, particularly infrastructure projects. He cited Jeddah’s new airport and Riyadh’s metro system, under construction, as examples.

Balancing Subsidy Cuts with Cash Payouts:

  • The Citizen’s Account, a cash payout program to compensate low and middle income Saudis for subsidy cuts and other austerity measures, is on schedule to start payments in July.
  • More than 11 million have applied for support. How many are eligible to receive it is still under discussion, Al Tuwaijri said.
  • "The direction we’re getting" from Deputy Crown Prince Mohammed bin Salman "is to be as generous as possible and cover as much as possible," Al Tuwaijri said.
  • "That comes with a price," he said, explaining that the government is still assessing "how much of the subsidies or the lifting of the subsidies we’ll be getting" as a result, "and what percentage the government is willing to balance."
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