DUBAI, United Arab Emirates -- Saudi Arabia has issued its first government bonds since 2007 to cover a growing budget deficit and its neighbor, the United Arab Emirates, has scrapped fuel subsidies as the big oil exporters scramble to deal with sharply lower crude prices.
Saudi Arabia's Ministry of Finance announced Tuesday it had issued 20 billion riyals ($5.33 billion) of sovereign development bonds. It floated five-year bonds with a coupon of 1.92%, seven-year bonds at 2.34%, and 10-year bonds at 2.65%. The ministry said the debt was sold mainly to domestic private banks.
It also said it sold 15 billion riyals of bonds to a government-funded organization in June. The country will probably issue more debt later. Reuters reported that Saudi Arabia is expected to float 100 billion to 200 billion riyals worth of debt this year.
More than 80% of Saudi Arabia's export revenue comes from crude oil and related products. A prolonged slump in oil prices has sapped government coffers, leading the kingdom to forecast its first budget deficit in four years at the start of 2015. The International Monetary Fund estimates the country's budget gap may reach 20% of gross domestic product this year.
Saudi Arabia has a huge pile of foreign reserves built up during the last period of high oil prices. It may be better able to withstand a price slump than other oil producers such as Venezuela and Iran, but it cannot cover the deficit out of foreign reserves forever.
According to Saudi Arabian Monetary Agency, which functions the kingdom's central bank, reserve assets in June stood at 2.5 trillion riyals, down 10% over the previous 10 months.
Riyadh's spending on its military intervention in neighboring Yemen has been a burden as well. Since March, the Saudi military has conducted airstrikes targeting Houthi rebels. With the conflict in Yemen dragging on, Saudi Arabia has been unable to extricate itself.
Another concern is the country's rising domestic security spending. By joining coalition airstrikes against Islamic State militants, Saudi Arabia has exposed itself to a growing terrorist threat.
A suicide bomber killed 15 people at a mosque in the city of Abha in southwestern Saudi Arabia on Aug. 6. IS claimed responsibility for the attack. Prior to that, there were two blasts in the eastern part of the country for which IS has been blamed.
Crown Prince Mohammed bin Nayef, who serves as interior minister, stressed the country is committed to fighting terrorism.
The United Arab Emirates, meanwhile, removed gasoline and diesel subsidies for domestic transportation. A local newspaper also reported the UAE plans to impose a value-added tax.
Other Persian Gulf states such as Kuwait and Bahrain are also considering cutting fuel subsidies to shore up their finances.