Saudi Arabia has issued SR15bn ($4bn) of government development bonds so far this year to domestic banks, according to local press reports.

Fahad al-Mubarak, the governor of the central bank Saudi Arabia Monetary Agency, told a press conference that the bonds aimed to narrow the country’s deficit, which he expects to reach SR145bn ($37bn).

Al-Mubarak was quoted as saying that Saudi Arabia’s government will issue more debt over the coming months to cover the budget deficit. This will allow Riyadh to continue to increase spending while oil prices are lower.

However, no details of the terms of the bonds have been released.

Saudi Arabia has a rating of AA from UK-based Fitch Ratings Agency, Aa3 from US-based Moody’s Investors Services and AA- from US-based Standard & Poor.

This is the first Saudi sovereign issuance since 2007.

Between 2007 and 2014, high oil prices allowed the country to pay down its debts until they reached just 2.6 per cent of GDP, according to the IMF. It predicts Saudi Arabia will run a fiscal deficit as high as 20 per cent in 2015.

Saudi Arabia was relying on its foreign reserves, which it built up to a record level of $736bn in August 2014. It drew down on them by $64bn between the fall in oil prices and the end of May 2015.

Local banks, which are highly liquid, welcome the move. It will allow them to invest in high-quality, easily-tradable assets and stimulate debt markets by establishing a yield curve.

The bonds are expected to soak up some of the excess liquidity in the Saudi banking sector, slightly raising the cost of finance.

Local Jadwa Investments estimates that Saudi Arabia could issue as much as $53bn in bonds, depending on oil prices and the eventual budget deficit.