OREANDA-NEWS. Saudi Arabia's finance ministry has issued SR20 bn ($5.33bn) worth of "development bonds" with maturities ranging from five to 10 years. The move to diversify Riyadh's financing came as the IEA forecast that the global glut of crude that has driven down oil prices and slashed producer country revenues will not alleviate until the end of next year at the earliest.

Riyadh-based bank Jadwa Investment in its August 2015 report projects a Saudi budgetary deficit of SR398bn, compared to a deficit of SR66bn last year.

The bonds have been issued in three tranches. The tranche maturing in five years will yield an annual interest rate of 1.92 pc, bonds maturing in seven years will yield an annual interest rate of 2.34pc and bonds maturing in 10 years will yield an annual interest rate of 2.65pc.

The sale of the bonds is open to commercial banks, unlike a SR15bn worth of bonds issued in June that was only available to quasi government funds and institutions.

The finance ministry says it plans to further bond issues "of varying size and with varying maturities during the coming phase." It gives no details of the size of the expected bond issues, but says they will be "in accordance with finance requirements."

Saudi Arabia is resorting to drawing down its foreign reserves and borrowing to finance a budgetary deficit because the more than halving of oil prices since mid-2014 has drastically reduced its revenues.

Foreign reserves had fallen to $668bn by the end of June from $732bn at the end of 2014.

The Saudi budget is based on an oil price of $60/bl for Brent crude and average crude production of 9.6mn b/d. But prices so far this year have averaged below $60/bl. Even though Saudi output has averaged 10.2mn b/d in the first seven months of this year, according to Argus estimates, the higher output may not be sufficient to bring in the amount of revenue for which the government has budgeted.

Officially published figures early this year indicate that the government expects a deficit of SR145bn. But Saudi government spending usually exceeds the annual budget by around 25pc. Given lower oil prices this year, Riyadh is likely to rein in overspending.

Jadwa expects Riyadh's oil export revenues this year to come to $171.8bn, some $113.2bn below last year's revenues of $285bn. It bases its forecast for this year on a Brent price of $61/bl and Saudi average output of 9.8mn b/d.

The IEA's projections for market fundamentals for the remainder of this year indicate there is no quick relief in sight for Saudi Arabia and other Opec producers.

The IEA said "even with the slowdown in non-Opec production and higher demand growth, a sizeable surplus remains." It predicts that, if Opec output remains at current levels, in the second half of this year supply will exceed demand by 1.4mn b/d "testing storage limits worldwide."

The IEA predicts the surplus will decrease to 850,000 b/d in 2016, with stocks potentially starting to decrease in the fourth quarter, but it points out that this prediction excludes potentially higher Iranian output.