In a statement issued Friday, March 14, leading ratings agency S&P Global Ratings revised its long-term foreign and local currency unsolicited sovereign credit rating on Saudi Arabia to ‘A+’ from ‘A’. At the same time, we affirmed the ‘A-1’ short-term foreign and local currency unsolicited sovereign credit rating. The outlook is stable. The transfer and convertibility (T&C) assessment was revised to ‘AA-‘, from ‘A+’.
“The upgrade reflects our view that the ongoing social and economic transformation in Saudi Arabia is underpinned by improving governance effectiveness and institutional settings, including deepening domestic capital markets. We believe that institutional checks and balances have become more visible as Vision 2030 progresses, as reflected by the recalibration of project priorities and timelines. This also illustrates some flexibility and coordination in management of capital expenditure and debt issuances.”
“Public and private investments are targeting the development of newer industries, such as tourism, manufacturing, green energy, and mining. The aim is to diversify the economy away from its primary reliance on the hydrocarbon sector. Current investments should boost consumption by Saudi Arabia’s largely young population of over 35 million and gradually increase the productive capacity of the economy. Over the longer term, we expect that Saudi Arabia will likely emerge a more resilient and diversified economy, with stronger job creation for the young population, and broader workforce participation.”
Economic resilience is advancing, with a gradual decoupling of the oil sector and overall growth. Economic diversification continues, with the non-oil sector (including government activities) now accounting for about 70% of GDP, relative to 63% in 2018. Since the government announced its ambitious Vision 2030 program in 2016, the country has achieved 87% of its 1,064 targets. This includes tourist visitors exceeding 100 million and women’s employment rate above 30%. We expect that the phased infrastructure spending, changing consumption patterns, and labor market developments will continue to strengthen economic resilience. This represents an ongoing shift in economic drivers away from the more pro-cyclical government spending linked to oil prices in the previous decades.
The report noted numerous other factors with details including:
Growth picked up modestly to 1.3% in 2024, after a contraction of 0.8% in 2023.
Medium-term growth prospects remain strong, with non-oil activities being the key driver.
Rising hydrocarbon production will also contribute positively to growth.
Beyond Vision 2030 projects, ongoing labor reforms and productivity will be key factors in growth.
Geopolitical risks remain elevated, with oil prices being one of the key transmission channels.
Saudi Arabia aims to expand its geopolitical footprint beyond the region while maintaining strong alliances with the U.S. and China.
Flexibility and performance profile: The government is targeting a calibrated expansionary fiscal stance
The government will maintain comfortable fiscal buffers despite rising government debt.
In 2024, the government recorded a fiscal deficit of 2.8% of GDP.
Public investment and lower oil revenue will be the key drivers of wider fiscal deficits.
Despite wider deficits, we expect net borrowing to decrease from 2024 highs.
We forecast a shift to current account deficits from 2025.
We forecast a shift to current account deficits from 2025.
Domestic capital markets will play a larger role in financing Vision 2030.
We expect that the long-standing currency peg to the U.S. dollar will continue.
Inflation will remain contained, partly owing to price caps and the peg to the U.S. dollar.
To read the report, click here. For more, click here, here and here.
