ºÚÁÏÉçÇø

Government debt — also known as public debt, national debt and sovereign debt — is the debt raised and owed by a government. There are two major types of government debt: Internal debt (owed to lenders within the country) and external or international debt (owed to foreign lenders). Another common characteristic of government debt is attached to the duration and the repayment of the debt. Short-term debt is generally considered to be for one year or less, and long-term debt is for more than 10 years, while medium-term debt falls between these two boundaries.
A broader definition of government debt may consider all government liabilities, including future pension payments and payments for goods and services that the government has contracted but not yet paid for.
Usually, governments elect to raise public debt, or borrow, when they intend to finance their budget deficit (when expenditures exceed revenues) or finance certain megaprojects by creating what are known as debt instruments, such as public securities, government bonds, treasury bills or Islamic sukuk. Before they decide to borrow, governments usually evaluate all options available (e.g., whether to borrow locally or internationally).
Such options are very much linked to the internal liquidity position, the pricing, and the terms and conditions of the loan. Governments usually solicit external borrowings to avoid placing pressure on internal liquidity and cause any kind of distortion that could end up limiting lenders’ capability to employ their money internally to meet private sector financing needs.
At times, governments elect not to borrow internally or internationally to finance their budget deficit, choosing to instead draw from public reserves in order to avoid any negative effects on internal liquidity or high international pricing and restricted financial covenants. Sometimes governments choose to mix between borrowing internally and externally and also draw from their public reserves.
Government debt is considered to be an excellent risk-free investment instrument for those who are interested in investing in sovereign financial securities, especially in the case of Saudi debt due to its excellent history and outstanding commitment to payments.
In the case of ºÚÁÏÉçÇø’s public debt, the government established in the fourth quarter of 2015 the Debt Management Office (DMO) to manage and secure the Kingdom’s financing needs. It aims to provide the best financing costs in the short, medium and long term under acceptable degrees of risk in compliance with the financial policies of the Kingdom and its ability to access different international financial markets at fair pricing.
Since the establishment of the DMO, it has managed to secure a number of public debt issuances in all forms (both local and international) in order to support the nation’s financing needs. As of the end of the third quarter this year, the outstanding debt of the Kingdom amounted to SR549 billion ($146 billion).
It is worth noting that the Kingdom’s debt possesses a number of unique financial strengths, such as a strong economy and gross domestic product (GDP), which investors use to measure the country’s ability to make future payments on the debt, thus affecting borrowing costs and government bond yields. ºÚÁÏÉçÇø has also never defaulted on the principal payment or the service on the loan. It remains the G-20 country with the lowest government debt as a share of GDP (17 percent at the end of 2017), and the only net creditor (meaning government liquid assets are significantly higher than government debt). The Kingdom’s international debt publications represent an important figure in the JPMorgan Index and are expected to reach 1.3 percent of the index weighted indicators. The government’s reform programs, including plans to balance the fiscal budget by 2023, could over time offer a route back to a higher rating level. And the recent commendations of Moody’s and the International Monetary Fund on the progress made with regard to the implementation of the various Vision 2030 reform programs have reflected positively on the Kingdom’s ability to raise debt with favorable terms and conditions.
In my opinion, the financial strengths of the Saudi public debt have been reflected with a lot of benefits on the ability of the DMO to raise debt with favorable pricing and reduced cost of issuance, as well as providing opportunities for similar government companies by balancing the total value of the issue.
Such strengths have also helped the DMO to conclude debt issuance in a fast turnaround time. As an example, the recent $2 billion Islamic sukuk took only 14 days to issue. The DMO was also able to secure the issuance of the same $2 billion Islamic sukuk debt at a very favorable fixed pricing of 127 basis points from a starting negotiating level of 145 basis points.
In conclusion, the financial strengths of the Saudi public debt have helped the government to raise debt with very preferential terms and conditions, including soft pricing, fast turnaround time and over-subscribing.

Talat Zaki Hafiz is an economist and financial analyst.