Saudi Arabia is reported to be close to securing a $10 billion loan deal from international banks as it tries to recover from plunging oil revenues.
It is the first time the Kingdom has gone to the international markets since the early 1990s when Iraq invaded Kuwait. The country’s oil income, its main source of revenue, fell 23% last year.
The loan, which is expected to be finalised at the end of the month, will help Saudi Arabia to reduce its reliance on domestic banks and gauge international demand for its debt.
It could also open the way for the Kingdom to issue an international bond.
The move comes just days after a meeting of the world’s leading oil exporters to discuss capping production ended without agreement. Saudi Arabia appeared willing to freeze output but only if all Opec members agreed, including Iran. However, Iran maintained it would continue with the the increase in oil production, a policy it has followed since economic sanctions on the Islamic Republic were lifted earlier this year.
The oil price has fallen almost two thirds since June 2014, driven by a combination of oversupply and competition from US shale oil producers. Saudi Arabia’s budget deficit soared to $98bn last year on the back of falling crude prices.
To help make up for the shortfall, the country has cut public spending and increased tax, fuel and energy prices. There are fears that infrastructural projects, such as the planned new metro lines may be affected by the low oil price.
Saudi Arabia is not the only Gulf country to seek help from abroad due to the low oil price. Earlier this year Qatar secured a $5.5bn loan, while Oman is also reported to have borrowed $1bn from overseas.