Non-oil growth to remain strong over the next 5-10 years - Moody’s

Saudi Arabia is projected to sustain non-oil sector growth of 4.5-5.5% annually over the next 5-10 years, Al Arabyia reports, citing a Moody's report. The forecast follows strong performance in 2024, where a 4.5% non-oil GDP growth offset a 4.4% contraction in the oil sector from production cuts, resulting in an overall growth of 2%.

Spending-fueled growth to widen the budget deficit: Moody’s expects the kingdom’s fiscal deficit to widen to 5% of GDP in 2025, before narrowing to 3-4% over 2026-2027, the agency said in a report seen by EnterpriseAM. The increase is spurred by lower revenues, along with the government’s decision to maintain its high-spending strategy on Vision 2030 initiatives. “While it estimates 2025 expenditure to be 4% higher than its budget for the year, spending will likely be 3% lower than in 2024,” the report read. Moody’s estimates are broadly in-line with the Finance Ministry’s forecasts of a 5.3% deficit in 2025 and a 3.3% deficit in 2026.

Lower oil prices and slashed Aramco dividends add pressure, with Moody’s assuming an average oil price of USD 65 per barrel in 2026-2027, roughly 20% below the USD 81 average in 2024. These headwinds are expected to be partly offset by higher non-oil revenue and a faster unwinding of oil production cuts.

Debt to rise, but balance sheet remains “solid”: Government debt is projected to reach 36% of GDP by 2029, up from 26% in 2024, placing the Kingdom’s debt burden above the median for its A-rated peers, Moody’s said. Still, the agency described Saudi Arabia’s balance sheet as “relatively solid,” supported by a 40% debt ceiling and financial assets equivalent to about 20% of GDP at the end of 2024.

Meanwhile, in the banking sector: The Kingdom’s non-oil expansion has driven credit growth that is outpacing deposits, prompting banks to tap capital markets and syndicated loans for funding, according to the report. However, rapid growth in lending and the ins. sector could pose management risks for financial institutions. To mitigate volatility, the Saudi Central Bank (SAMA) will introduce a 1% countercyclical capital buffer starting in May 2026.

Shifting to the private sector: While the Public Investment Fund (PIF) has led early investment phases, the rating agency highlighted a growing role for private investors and expanded public-private partnerships, expected to enhance sustainability and strengthen the Kingdom’s credit profile.