In a significant shift within the emerging markets, Saudi Arabia has overtaken China as the leading issuer of international debt, a position held by Beijing for more than a decade. This change underscores a dynamic shift in global borrowing practices and points towards the kingdom’s aggressive funding strategy for its ambitious Vision 2030 plan.
Recent figures show that Saudi Arabia has been issuing bonds at an unprecedented rate, attracting the attention of global debt investors. With China’s slow pace in international bond issuance, the kingdom has successfully claimed the top spot, signaling a positive market sentiment towards Riyadh’s initiatives to transform its economy.
The significance of this development is not lost on observers, given that Saudi Arabia’s gross domestic product is a fraction of China’s. The country’s aspiration to become an international business nexus by the end of the decade is reflected in its enthusiastic approach to financing projects that aim to diversify its economy beyond oil and establish it as a strategic crossroad between Asia and Europe.
Experts in the financial sector have noted the robust appeal of Saudi bonds. For instance, Apostolos Bantis, a Zurich-based fixed-income advisor, remarked on the kingdom’s prominent position in the emerging market bond sector, which aligns with its extensive infrastructure investment needs.
Statistics reveal an 8% increase in bond sales from Saudi entities this year, with the total surpassing $33 billion. The government is responsible for a significant portion of this volume, including a substantial $5 billion sukuk transaction in the previous month.
As Saudi Arabia seeks to mitigate an anticipated budgetary gap of around $21 billion, it turns to various financing channels. The country’s projected funding activities are estimated to reach approximately $37 billion for the year, in a bid to expedite the objectives of Vision 2030. The reliance on the bond market has partly arisen from a shortfall in foreign direct investment and the constraints on oil revenue due to production cuts.
However, this aggressive borrowing strategy has prompted caution among certain investors. For example, Barclays Plc has adjusted their outlook on Saudi sovereign credit to a less favorable stance, citing ongoing bond issuance and the impact of fluctuating oil prices and regional tensions.
Bantis from UBP highlighted that the kingdom could not sustain its current pace of bond issuance indefinitely without affecting its financial stability and borrowing costs.
On a broader scale, the issuance of international bonds among emerging markets has surged to $291 billion, a 28% hike from the previous year and the most substantial amount since 2021. The demand for emerging market bonds, including both sovereign and corporate, is now yielding an average premium of about 266 basis points over U.S. Treasuries, which is below the five-year average.
Contrasting with the global trend, China has seen a dramatic 68% decrease in dollar- and euro-denominated bond sales this year, with a combined total of $23.3 billion from state and corporate issuers. This represents a significant drop from its historical average and reduces China’s share of the emerging-market borrowing pie to just 8.1%. This is in stark contrast to 2017 when China dominated the market. Despite this, the country is experiencing a boom in local-currency bond issuance as borrowing costs reach record lows.