Fitch affirms Saudi A+ rating, but with a slowdown in the cards

A+ again: Fitch Ratings affirmed Saudi Arabia’s long-term foreign-currency issuer default rating at A+ with a stable outlook, delivering a vote of confidence in the Kingdom’s balance sheets despite the economic fallouts of the US-Iran war. The rating comes on the back of strong fiscal and external buffers as well as net foreign assets.

A slowdown in the cards? The rating agency expects real GDP growth to slow to 0.6% in 2026, a 4.2-percentage-point drag from the agency’s January forecast, affected by the closure of Hormuz and the inability to export petrochemicals.

Better than what could have been: Flows through the East-West pipeline helped keep oil moving at an average of 9 mn bbl / d — though lower than levels seen in 2025 — and consumer spending has held up through the conflict, Fitch said. Growth is expected to rebound in 2027, before easing to 2.9% in 2028.

The safety net is still intact: Foreign reserves are projected to remain well above peers, covering 11.6 months of external payments in 2026. Sovereign net foreign assets are set to decline as borrowing rises, but will remain a key strength, standing at 38.5% of GDP by end-2028.

Banks are also holding up: Non-performing loans and Tier 1 capital ratio stood at 1.1% and 19.2%, respectively, at the end of 1Q, improving from levels seen in 2024. The sector’s net external position is projected to narrow slowly as credit growth, especially for mortgages, eases compared to deposit growth.

The budget deficit is set to narrow in 2026 as higher oil prices offset lower oil volumes, before it picks up again to 4.7% of GDP in 2027 as oil revenues ease, consistent with a fiscal breakeven of USD 94 / bbl. Looking ahead, the deficit is also projected to narrow in 2028 despite Fitch seeing oil prices easing to USD 60 / bbl in 2028, due to easing pressures from the war and expenditure adjustment measures.

The agency expects a current account surplus in 2026, from a previously forecasted deficit of 4.3% of GDP in 2026, driven by higher oil revenues. Moving forward, lower oil prices and domestic demand will drive a current account deficit of 5% of GDP by 2028, which will be cushioned by external borrowing and sales of foreign assets to domestic buyers.

REMEMBER- The IMF has recently revised Saudi Arabia’s 2026 GDP growth forecast to 1.7%, down from the 2% it predicted in June. It also boosted its 2027 prediction by one percentage point to reach 5.5%.