S&P Global Ratings gives its two cents on the Kingdom’s economy

S&P Global Ratings predicts a strong outing for Saudi Arabia’s economy in 2025, with analysts in the agency conducting a webinar —dubbed the Credit Outlook For Saudi Arabia — where they discussed S&P’s recent decision to upgrade Saudi Arabia's long-term foreign and local currency issuer credit rating to A+ from A with a stable outlook.

Refresher: S&P Global Ratings revised the Kingdom’s credit rating on the back of its 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.”

“We expect strong non-oil growth momentum to continue, driven by government measures to spur investment and consumption. While we acknowledge the risks associated with lower oil revenue and rising government and external debt, we believe that the recalibration of infrastructure spending will maintain a strong sovereign balance sheet and external position,” S&P Global Ratings Head of Analytics Hina Shoeb said at the start of the webinar.

There are some weaknesses to the Kingdom’s credit, including:

• Reliance on the oil sector — which, despite being on the decline, still exposes the fiscal and external positions to volatility in prices.
• Higher fiscal deficits: S&P sees the budget deficit increasing to over 4.0% of GDP over 2025-2028, from about 1.0% in the past four years.
• Rising external financing needs: The agency expects elevated levels of debt issuance across all the sectors to double external debt to GDP by 2028 compared to levels seen in 2022.

“We are expecting increasing oil production to have an impact on oil revenue, but this will be more than offset by the lower oil prices,” S&P’s Zahabia Gupta said during the webinar. “The government can manage this by reducing some of the capex spending they had in mind — and they are expecting spending to be lower this year than it was last year. However, we expect spending levels to be unchanged from last year, and we see it increasing slightly over the next few years as well, but we will be looking to see how the policy responses change as a result.” Gupta added.

FDI will rise — but it may not do so at the rate the gov’t is aiming for: S&P sees the Kingdom’s FDI numbers to “gradually pick up,” but there are also some constraints that authorities are trying to fix, Gupta said. “This includes issues on the regulatory framework, infrastructure, the rule of law, and payment culture. These issues create some hesitation for investors, but things are changing very quickly in the country. But still, it will stay below the levels that the government is expecting.”

Remember: The Kingdom is targeting USD 100 bn in foreign direct investment per year as part of Vision 2030, after averaging USD 17 bn per year between 2017-2022 and managing to bring in an estimated USD 19 bn in 2023.

Debt issuances could begin to slow down: “The total amount of debt issuances are going to moderate moving forward, because the fiscal headroom will also reduce gradually, and the authorities will be focused on not increasing their debt servicing costs,” Gupta said.

Remember: The Kingdom topped the GCC in terms of bond and sukuk issuances, raising USD 79.5 bn from 79 primary bond and sukuk issuances in 2024 — a 51.2% y-o-y increase from USD 52.5 bn in 2023. Saudi Arabia accounted for 53.7% of the GCC’s total primary issuances volume at USD 147.9 bn last year.