Bonds is one of the tools that governments can use to raise finance.
According to the article: http://www.ft.com/intl/cms/s/0/e9e197fe-3b5d-11e5-8613-07d16aad2152.html#axzz3i2JyBXpl, the oil price has dropped significantly, from $115 a barrel in June last year to $50 yesterday. And the news that was released a few hours ago indicates that the oil price is at $45.15 a barrel, which is a 5 month low: http://www.cnbc.com/2015/08/04/us-crude-edges-towards-46-eyes-on-inventory-data.html.
This is often a delightful news for many South Africans, as they spend a significantly higher proportion of their income on fuel than the citizens of other countries who rely on public transport. And this may be a relief for certain industries in which oil is a significant input. But this is not the case for some traders and the government of Saudi Arabia. We were taught in Fin Ecos that in some derivative trading, one party gains at the loss of another party. The loss in this case does not seem as directly correlated to gains as one would see in derivatives like futures, but we can see the issue has a different consequence on each stakeholder.
The first article mentions that Saudi Arabia is the world’s largest oil exporter and experiencing some pain during the steep decline in the oil price over the past year. $105 a barrel is required to balance the budget; one of the consequences was that the tax revenues kept falling. As a result, the fiscal reserves dropped from $737 billion last year August to $672 billion this year.
The bond issuance was chosen as one of the plans to cover the deficit. It is worthwhile to note that this is the first issue since 2007. $4 billion was issued in July already and the further $23 billion will be issued by the end of the year – in tranches of five, seven and ten years.