S&P Global Ratings expects Saudi Arabia’s GDP to grow by 3.5 percent over 2025-2028, with fiscal deficits averaging 4.4 percent of GDP over the same period, driven by Vision 2030 investments.
In its latest report, Saudi Credit Trends: Change In Progress, the ratings agency noted that U.S. trade policy is creating uncertainty in the oil and gas market. In addition, OPEC+ is increasing production in an oversupplied market. However, strong growth in non-oil activities from 2025 will support Saudi Arabia’s medium-term growth prospects.
Strong non-oil growth to support medium-term prospects
Although oil and gas are exempt from direct U.S. tariffs, the decrease in demand growth could be more pronounced than expected. This is due to weaker economic activity. Other government decisions can also disproportionately impair exposed operations and credit profiles.
“After broad and material tariff announcements, we anticipate oil demand growth will moderate to 0.8 million bbl per day (bbl/d) in 2025, compared with 1.1 million bbl/d in 2024, with further moderation expected in 2026,” said S&P.
The report added that the move by OPEC+ to increase supply in 2025 is a watershed moment for oil prices. This, together with weaker demand growth and significant spare capacity, means market fundamentals are becoming increasingly important for price formation.
Despite more challenging conditions in the oil market, Saudi Arabia’s economy will become more resilient and diversified over the long term. The report also noted that consumption growth relies on labor market reforms, a young and growing population and growth in leisure options.
In addition, strong growth in non-oil activities from 2025 will support medium-term growth prospects. S&P expects Saudi Arabia’s non-oil sector to increase its contribution to the GDP from 47 percent in 2018 to 52 percent in 2028.
Saudi Arabia to maintain net asset position of 30 percent of GDP through 2028
“Vision 2030 initiatives are set to enhance non-oil growth over the medium term. This is due to increased construction activities and a growing services sector that benefits from rising consumer demand and an expanding workforce,” the report added.
Even though the government’s net asset position will gradually decline, it will remain strong. Fiscal deficits will average 4.4 percent of GDP over 2025-2028. Along with Vision 2030 projects, the government will also ramp up spending for the Asian Winter Games in 2029, Expo 2030 and the FIFA World Cup in 2034.
Interest costs will stay low, but S&P anticipates that they could exceed 5 percent for the first time. However, the government will maintain a comfortable net asset position through 2028.
“Fiscal risks from rising debt issuances by the government and public investment fund (PIF) are mitigated by the recalibration of some large infrastructure projects. We expect the government will maintain a net asset position of about 30 percent of GDP through 2028,” the report added.
Banking sector remains resilient
Saudi Arabia’s banking sector also remains resilient. Banks are shifting to external debt to support Vision 2030, enhancing their economic role amid rising lending growth. As lending growth outpaces deposits, Saudi banks are increasingly seeking alternative funding sources. This led to a shift to a net external debt position of nearly 1 percent of total loans on December 31, 2024.
“We expect Saudi issuers will continue tapping into the global and local capital markets to finance Vision 2030–assuming no disruptions from the rising geopolitical risk. We will continue monitoring the leverage build-up over the medium to long term,” said S&P Global Ratings’ Head of Analytics for Saudi Arabia, Hina Shoeb.
The report adds that Saudi banks are well capitalized, and it expects this will continue to support their creditworthiness. They reported a capital adequacy ratio of 19.6 percent in 2024, well above the minimum capital adequacy requirement of 10.5 percent. Saudi banks are also profitable, and their earnings generation is sufficient for asset growth. S&P expects their dividend payout ratio to average 50 percent.
Ratings in the corporate sector will largely remain stable, with project finance dominated by the power and water sectors and rising momentum in digital infrastructure.
Read: IMF raises global growth forecast to 3 percent for 2025, 3.1 percent for 2026
Saudi Arabia’s insurance market has robust growth prospects
Saudi Arabia’s insurance market also benefits from robust growth prospects but faces challenges from high concentration and low penetration. 100 percent of Saudi insurance firms in S&P’s portfolio are investment-grade.
“Further consolidation and capital raising among midsize and smaller players could strengthen Saudi insurers’ capital buffers. The growth potential is significant, particularly in the long-term life and savings sector, which represents only 5 percent of total premium income in Saudi Arabia,” Ms. Shoeb added.
