Saudi Arabia’s robust activity in debt markets will persist this year, with the Kingdom’s Debt Capital Market expected to surpass $500 billion by the end of 2025, a new report suggests.
Fitch Credit Ratings highlighted that his growth will be fueled by the initiatives of Vision 2030, along with the Kingdom’s efforts to diversify its economy and implement reforms.
In 2024, Saudi Arabia emerged as the largest exporter of dollar-denominated debt in emerging markets outside of China, ranking at the top among the world’s largest exporters of dollar instruments.
Saudi Arabia’s credit rating
Fitch has reaffirmed Saudi Arabia’s credit rating at A+ with a stable outlook. In its report, the agency noted that the Kingdom’s credit rating reflects its strong financial standing, highlighted by a debt-to-GDP ratio and net sovereign foreign assets that exceed the averages for ‘A’ and ‘AA’ ratings.
Additionally, Saudi Arabia boasts substantial financial reserves in the form of deposits and other public sector assets. The agency indicated that net foreign sovereign assets are projected to reach 63.7 percent of GDP during 2024-2025, significantly higher than the average for ‘A’ rated countries, which stands at 8.7 percent of GDP, according to the Saudi Press Agency (SPA).
Read more: Saudi Arabia’s real GDP sees 4.4 percent growth in Q4 2024, highest in two years
Strong government balance sheet
Fitch anticipates that government debt as a percentage of GDP will increase to 35.3 percent by the end of 2026, up from 29.8 percent at the end of 2024. However, this figure remains significantly lower than the projected peer median of 55.1 percent. We estimate that government deposits at the Saudi Central Bank (SAMA), which include the government’s current account and fiscal reserve, accounted for 10.3 percent of GDP at the end of 2024.
Contingent liabilities are rising as government-related entities (GREs), particularly the Public Investment Fund (PIF), increase their borrowing. Nevertheless, these liabilities are overshadowed by GRE assets, with PIF debt comprising only 4.4 percent of its assets as of the end of the third quarter of 2024.
Oil driving headline growth
Headline economic growth is expected to rebound in 2025 after being constrained by oil production cuts agreed upon by OPEC+. The preliminary estimate places real GDP growth at 1.3 percent in 2024, with the oil sector contracting by 4.5 percent. Oil production is anticipated to align closely with the OPEC+ agreement starting in December 2024, leading to an expansion in the oil sector of 2.7 percent in 2025 and 6.4 percent in 2026.
Strong and resilient non-oil growth
The drivers of non-oil GDP growth appear robust, diverse, and resilient to the expected decline in oil prices projected by Fitch over the forecast period. This growth will further be supported by strong reform momentum and capital expenditures from government-related entities (GREs) and the government, pushing gross fixed capital formation toward a long-term high of 30 percent of GDP. Non-oil growth was recorded at 4.3 percent in 2024, primarily driven by wholesale and retail trade, transport, and construction.
Fitch also expects non-oil growth to maintain a similar pace in 2025 and 2026, occurring within a low inflation environment. Inflation averaged 1.7 percent in 2024. Factors such as currency strength, a continuing negative output gap, and the recalibration of government projects should keep annual average headline inflation below 2 percent.
