Saudi Arabia Wants To Borrow Up To $8 Billion To Close Budget Gap Amid Oil Glut That’s Battering Riyadh’s Finances

In an effort to stabilize its finances, Saudi Arabia is accepting proposals for a five-year bank loan of between $6 billion and $8 billion from unnamed banks. Riyadh is currently seeking the best loan terms with an option to increase the borrowing ceiling, according to anonymous sources close to the matter who spoke to Reuters.

The move comes as the oil kingdom is depleting its massive surplus of cash, one of the world’s largest, to offset its growing budget deficit, which hit $98 billion last year. Saudi officials estimated recently that the national debt will grow by 50 percent over the next five years as the country weathers the biggest oil glut since the 1980s.

In November, the oil-dependent country, which holds 16 percent of the world’s proven crude reserves, announced it would begin tapping global bond markets for the first time.

“Debt levels are still very low — tapping international debt markets will be an important way to fund spending without absorbing liquidity from domestic banks,” Monica Malik, chief economist at Abu Dhabi Commercial Bank, told the Financial Times.

Benchmark oil prices have plummeted from record highs of nearly $150 a barrel in 2008 to below $40 a barrel this year, which has hit Saudi Arabia’s spending on everything from higher education to subsidized fuel.

In December, Riyadh announced a series of spending cuts for 2016 in an effort to shave 14 percent off its annual budget as oil prices are expected to remain under pressure well past 2016. The government plans to spend 840 billion riyals ($224 billion) this year, down from 975 billion riyals ($260 billion) last year, according to the Wall Street Journal. Nevertheless, the country faces an $869 million deficit in 2016.

Cutting public spending risks a wide public backlash because the kingdom’s citizens are used to generous subsidies on fuel, electricity, water, healthcare, education and food.

The country is also considering offering shares in state-owned Saudi Aramco, the world’s biggest company worth trillions of dollars. Even a partial IPO could raise hundreds of billions of dollars for the government.

Saudi Arabia has been instrumental in keeping OPEC oil flowing into global markets despite a massive oversupply caused largely by the U.S. shale energy boom that took off in 2008. Riyadh fears losing global oil market share, as it did in the 1980s when it implemented a similar policy that helped push crude prices down by two-thirds to about $10 a barrel in 1986.