Over the past year, Saudi Arabia has seen its foreign reserves decline from last year's high of $737bn to a three-year low of $647bn in September.
Riyadh started to issue domestic bonds in the summer to fund its budget deficit. The government could continue to issue domestically for another 12 to 18 months, officials say, but it will need to diversify globally to leave liquidity available for private sector lending.
"Saudi Arabia is not in crisis," said a senior official. "We can borrow, we have reserves, we are working on a revenue generation programme."
The decision to issue bonds will be welcomed by the International Monetary Fund, which has called on Saudi Arabia to tackle its fiscal crisis by raising debt, as well as by trimming spending and boosting revenues.Standard & Poor's last month reduced Saudi Arabia's ratings from 'AA-/A-1+' to 'A+/A-1', saying it could lower them again "if the government did not achieve a sizeable and sustained reduction in the general government deficit".
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The downgrade angered the kingdom's finance ministry, which described it as "rushed" and "unjustified".
Meanwhile, Moody's, in an annual review earlier this month, did not change Saudi Arabia's Aa3 stable rating, saying its fiscal position was weakening, but "still relatively strong".
But it said Riyadh's creditworthiness would be affected without further expenditure cuts or increases in non-oil revenue. Oil currently accounts for 80 per cent of government receipts.
Saudi officials say they are seeking to reduce the kingdom's dependence on hydrocarbons through a combination of debt issuance, subsidy reform, taxes and privatisation.
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Officials said Riyadh had introduced cuts to departmental budgets and tightened financial management, requiring approval for all projects worth more than Sr100m, even if they had been previously approved. It has also halted discretionary spending that typically rises in the fourth quarter.
One Saudi official said overspending departments were now restricted from making any more payments to contractors until their budgets are set next year.
Officials are not predicting a severe drop in non-oil GDP growth next year. But business observers say the impact on the economy of lower spending has undermined confidence in a private sector that is heavily reliant on government expenditure. Tighter control over ministerial spending has translated into delays in payments to suppliers.
Non-oil growth is projected to slow to 2.9 per cent this year from 5 per cent last year, according to the IMF.
"One riyal delayed has more than a riyal impact," said a Riyadh-based banker.