Islamic Dollarization

Islamic Dollarization

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  • Due to weaker oil prices pushing the budget into a deficit, Saudi Arabia plans to issue Islamic securities or sukuk in the dollar bond market for the second time this year. The kingdom will offer sukuk with a maturity of six and ten years, with an initial yield guidance of 110 basis points and 135 basis points over US Treasures for shorter and longer notes respectively.
  • Saudi Arabia may face a fiscal deficit for the full year due to increased spending, warns the IMF. The breakeven oil price for the country is projected to be nearly $81 a barrel, above the current Brent price of around $74. Despite supply cuts by Saudi Arabia and OPEC+, oil prices have declined in the past month due to concerns about high interest rates and weak global growth impacting fuel demand.

Why it matters

The IMF and Saudi Arabia's government disagree on the country's projected 2023 deficit. While the IMF forecasts a 1.1% budget deficit, the government expects a second consecutive surplus. The government reduced its financing needs last year by pre-funding $12.8 billion in debt. Saudi Arabia's dollar bonds currently trade with an average yield of 4.6%, and the country last sold $10 billion in dollar bonds in January.


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