On Friday we noted that Qatar has now followed Saudi Arabia into the debt markets to raise cash amid slumping crude prices. Specifically, Qatar issued some $4 billion in bonds earlier this month – the offering was oversubscribed four times. Central bank Governor Abdullah Bin Saoud Al Thani said simply, “Interest rates are low in Qatar now so we decided it was the right time to issue these bonds and sukuk.”
Indeed, but it’s clearly not all about interest rates although, as we said last month regarding the Saudis’ return to the bond market, there’s something hilariously ironic about the fact that one reason crude prices have remained so low is that ZIRP has kept capital markets open to insolvent US producers allowing them to stay in business longer than they otherwise would have, effectively making the war to maintain market share longer and more painful than the Saudis had figured on, and that, in turn, has now led Gulf states to tap the very same accommodative capital markets that are keeping their US competition in business.
In short, the fallout from the demise of the petrodollar is becoming impossible to sweep under the rug even as Gulf states are keen to downplay the severity of the budget crunch.
For the Saudis, who need crude at $100 to plug a budget deficit that’s projected at a whopping 20% of GDP, the situation is becoming particularly acute and indeed, the kingdom is now set to slash any “unnecessary expenditures.”
“We are working… to cut unnecessary expenditure,” Finance Minister Ibrahim al-Assaf told Dubai-based CNBC Arabia in Washington, where he is accompanying King Salman on a visit.
“There are projects that were adopted several years ago and have not started yet. These can be delayed,” Assaf said.
He said the government would issue more conventional treasury