Improving Public Debt Management
In the OIC Member Countries
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national level, which approves new financial instruments and proves sharia compliance
(COMCEC 2016a). Islamic finance instruments represent a growing sector in the Saudi Arabian
banking industry. Considering the global Islamic finance market, Saudi Arabia’s share of global
Islamic banking assets represents 19%. If one considers the domicile of assets, Saudi Arabia
even represents 40% of Islamic fund assets in the world. Within its own jurisdiction, the share
for Islamic banking in its total domestic banking sector equals 49% (IFSB 2016).
In 2015, domestic sukuk bonds in the amount of $4.5 billion were issued, consisting of
corporate34 and quasisovereign bonds (IIFM 2016). Quasisovereign sukuk in Saudi Arabia
refer to governmentbacked Islamic bonds or bonds issued by stateowned companies. Among
the first issuers of quasisovereign sukuk were the Saudi General Authority for Civil Aviation
($4 billion in 2012) and the Saudi Electricity Company ($1.75 billion in 2012), which serve as a
benchmark for sovereignguaranteed sukuk issuances since then (IIFM 2016, Hamdan 2012).
In 2015, international issues of quasisovereign sukuk were carried out by the Arab Petroleum
Investments Corporation in the amount of $500 million and the Islamic Development Bank in
the amount of $1 billion (IIFM 2016).35
The MoF used sharia compliant products for the first time with the issuance of Floating Rate
Notes (FRNs) in 1997 and later with the issuance of shortterm murabaha in 2002.36 In
January 2016, the government started to issue also longterm murabaha (IMF 2016b). The
general rise in popularity of corporate and quasisovereign sukuk and other Islamic finance
instruments in Saudi Arabia are an indicator that Islamic bonds will play also a bigger role in
public debt management in the future.
Domestic debt marketUntil 2016, public debt in Saudi Arabia was completely domestic. The main holders of
government debt are banks and pension funds, holding over 90% of government debt. In 2016,
Saudi Arabia began to issue international bonds to finance budget deficits. Diversifying the
economy and raising nonoil revenue is a priority since low oil prices have hit the economy
(Kerr and Moore 2016) and international investors’ demand for government bonds, especially
from Asian investors, appears to be very high (Martin 2016). The low public debt level opens
opportunities to issue both domestic and international bonds to help finance the anticipated
budget deficits (SAMA 2016a).
Foreign borrowingWhile Saudi Arabia already took an international loan in the amount of $10 billion from a
consortium of commercial banks in April 2016 (EIU 2016), the first international bond sale of
Saudi Arabia took place in later2016 (to the amount of $17.5 billion). The bonds had
maturities of 5 to 30 years and yields between 2.4% and 4.5%. This international bond sale
was the biggest international debt issuance by an emerging country so far.
34 Corporate issuers in 2015 were Arab National Bank ($533 million), Almarai Company ($427 million), NationalCommercial Bank ($1,007 million), Riyad Bank ($1,070 million) and Saudi British Bank ($411 million) (IIFM 2016).
35 In addition, the Islamic Development Bank also issued a domestic sukuk in 2015 equal to $514 million (IIFM 2016).
36 Although GDBs are not defined as Islamic Bonds, they have the feature that they are “zakah (compulsory alms) deductible”
for domestic investors (AlSayari 2003).