Saudi Arabia’s economic diversification is set to drive an average annual GDP growth of 3.5% through 2028, even as Vision 2030 investments contribute to fiscal deficits and the global oil market faces uncertainty, S&P Global Ratings said in its Saudi Credit Trends report (pdf). This is supported by expected stability across the banking and corporate sectors and strong growth prospects for an investment-grade ins. market.

(** Tap or click the headline above to read this story with all of the links to our background and outside sources.)

Twin deficits are sticking around from 2025-2028,, with fiscal deficits averaging 4.4% of GDP and current account deficits around 2.4% of GDP due to government spending on Vision 2030 projects, major international events, and rising imports for development projects. Gross external financing needs are expected to rise to an average of 85% of current account receipts and usable reserves, up from 69% last year.

Zooming out: S&P expects the non-oil sector’s contribution to the Kingdom’s GDP to remain stable around the 51-52% mark until 2028. Oil is expected to contribute 27-28%, while the government sector’s share will remain a steady 21% of the economy.

Saudi banks are well-capitalized, with a capital adequacy ratio of 19.6% at the end of 2024, far exceeding the 10.5% minimum requirement. This is reflected in the “Strong” rating for capital and earnings across all eight rated financial institutions, all of which have a “Stable” outlook with ratings from A to BBB+.

.. and are adopting new funding strategies: Banks are progressively using alternative funding sources like external debt to support Vision 2030 investment needs, creating a net external debt position of nearly 1% of total loans by the end of 2024.

The Saudi corporate and infrastructure portfolio is largely stable, with 71% of its issuers being investment-grade, with a similar ratio of government-related entities (GREs). All rated companies have a rating between A+ and B+ with a stable outlook, except for Almarai which has a positive outlook.

The ins. market is highly concentrated, with the top five players generating 70%-75% of revenues. This, along with intense competition in key lines like motor and medical, pressures the margins and underwriting performance of the other 21 insurers. Despite these market-wide challenges, the six rated issuers are all investment-grade with stable outlooks.

REMEMBER- The rating agency had raised its 2025 GDP growth forecast for the Kingdom by 0.2 percentage points to 3.7% in June, citing increased oil production. However, the agency lowered its projections for subsequent years due to a revised GDP methodology, trimming its 2026 forecast by 0.3 percentage points to 3.9% and setting its forecast for 2027 to 3.2%, and for 2028 to 3.1%.

Tags: