S&P Global Ratings upgraded Saudi Arabia's long-term foreign and local currency issuer credit rating to A+ from A, with a stable outlook, according to a statement. The ratings agency maintained its A-1 short-term foreign and local currency unsolicited sovereign credit rating, while the transfer and convertibility (T&C) assessment was revised to AA-, from A+. Reuters and Bloomberg also had the story.

The rationale: The revised ratings came on the back of the Kingdom's progress in economic diversification, expansion of the non-oil sector to 70% of GDP, and development of the domestic capital market. S&P expects these factors to offset the risks associated with rising sovereign and external debt “to pursue Vision 2030 goals and debt servicing costs.”

What could drive a further rating upgrade: S&P said it may consider another upgrade within two years if structural reforms and non-oil economic growth significantly boost GDP per capita and attract more private and foreign investment, reducing dependence on public spending.

And what could bring the rating down: A downgrade can occur if debt accumulation across government and other sectors outpaces expectations, straining public finances and weakening Saudi Arabia’s external position. “This could be the case if we saw a combination of a sharp ramp-up in investment projects funded by debt, along with a slowdown in growth, higher borrowing costs, and unfavorable movements in oil prices,” the ratings agency said.

The fiscal risk: Despite diversification progress, fiscal risks persist due to oil price sensitivity, with S&P forecasting prices to decline to USD 70 / bbl over 2025-2028, and the country’s fiscal deficit to widen to 4.8% of GDP in 2025 from 2.8% in 2024. However, gradual borrowing will sustain the Kingdom’s net external creditor status, maintaining a 32% net asset position through 2028.

ICYMI- Last week, the PIF signed a USD 3 bn MoU with Italy's state export credit agency Sace to help maintain the Kingdom’s debt, adding to previous EUR 3 bn in loan guarantees.

OTHER KEY INDICATORS-

Real GDP growth is expected to come in at 4.0% this year, before picking up to 4.6% in 2026, 3.7% in 2027, and %3.6 in 2028, driven by investments in construction, logistics, and manufacturing.

REMEMBER- GDP grew 1.3% y-o-y in 2024, exceeding the government’s 0.8% forecast, while 4Q growth hit 4.5% y-o-y GDP, the fastest in two years, supported by oil and non-oil activity. The Finance Ministry expects GDP growth of 4.6% in 2025, 3.5% in 2026, and 4.7% in 2027, fueled by non-oil expansion, job creation, and foreign investment.

Inflation is expected to “stay modest at 1.9% over the next four years,” controlled by price caps and the SAR being pegged to the USD, despite rising housing costs and supply pressures. In comparison, inflation averaged 1.7% in 2024.

Fiscal deficit: The credit rating agency sees the government running deficits averaging 4.2% of GDP during 2025-2028 on the back of large public investments, particularly in the run-up to major global events hosted in Saudi Arabia, including the Asian Winter Games in 2029, Expo 2030, and the FIFA World Cup 2034.

Sovereign debt: Government debt is expected to rise gradually to 36.2% of GDP by 2028, up from about 25.4% in 2024.

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