Fitch gives Saudi Arabia Default Rating ‘A+’; Outlook Stable

Fitch Ratings has affirmed Saudi Arabia’s Long-Term Foreign-Currency Issuer Default Rating at ‘A+’ with a Stable Outlook.

In its recently released Rating Action Commentary, Fitch Ratings notes that, Saudi Arabia has strong fiscal and external balance sheets, with government debt/GDP and Sovereign Net Foreign Assets (SNFA) significantly stronger than both the ‘A’ and ‘AA’ medians as well as significant fiscal buffers in the form of deposits and other public-sector assets.

The Rating Action Commentary highlighted ten ‘Key Rating Drivers’:

Balance Sheet Strength: Oil dependence, low World Bank governance indicators and vulnerability to geopolitical shocks have improved but remain relative weaknesses. Deep and broad social and economic reforms implemented under Vision 2030 are diversifying economic activity, albeit backed by large public spending.

Robust External Finances: Fitch expects current account deficits in 2025 and 2026 (averaging 2.4%) as lower oil prices reduce oil revenues (despite higher production as Opec+ cuts are gradually unwound) and import growth, driven by project execution, stays strong. Growth in non-oil exports will be robust and the services deficit should continue narrowing, given strong growth in travel and tourism

Weakening in External Balance Sheet: With domestic sources of financing insufficient to meet the needs of the economy, we expect continued large recourse to external borrowing. There is also likely to be less acquisition of foreign assets to reflect the government’s commitment to greater domestic investment.

2024 Budget Deficit Above Target: Fitch estimates the fiscal breakeven oil price at USD96/b in 2024 and forecasts a widening in the deficit in 2025 to 3.8% of GDP, driven by lower oil revenues (budget target 2.3%).

Wider Budget Deficits: This reflects our forecast that oil prices will fall (Brent crude is forecast to fall to USD70/b in 2025 and USD65/b in 2026) and Fitch’s expectation that the Aramco extraordinary dividend (distributed in 2023 and 2024 but not budgeted for 2025) will not reoccur.

Strong Government Balance Sheet: Fitch projects government debt/GDP to rise to 35.3% of GDP by end-2026, up from 29.8% at end-2024, but still well below the projected peer median of 55.1%.

Oil Lifting Headline Growth: Headline economic growth is set to rebound in 2025 after being held back by cuts to oil production agreed by Opec+. Oil production is projected to move broadly in line with the Opec+ agreement from December 2024, meaning an expansion in the oil sector of 2.7% in 2025 and 6.4% in 2026.

Strong and Resilient Non-oil Growth: Non-oil GDP growth drivers appear robust, diverse and resilient to the decline in oil prices Fitch projects over its forecast period. Non-oil growth was 4.3% in 2024, led by wholesale and retail trade, transport and construction.

Easing Geopolitical Risks: Saudi Arabia is exposed to geopolitical risks, but Fitch judges that these have lessened recently, given the dynamics of the regional conflicts. Governance indicators, as measured by the World Bank, improved strongly in 2023 and are 10pp above their 2022, but remain a weakness relative to peers.

ESG – Governance: Saudi Arabia has an ESG Relevance Score (RS) of ‘5’ for Political Stability and Rights and ‘5[+]’ for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model. Saudi Arabia has a medium WBGI ranking at the 54th percentile with low scores for Voice and Accountability, and Political Stability and Absence of Violence constraining the average.

The Rating Action Commentary also noted factors that ‘Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade.’

They include:

Public Finances: Deterioration in the overall public finance position, reflected in government debt/GDP trending firmly above our forecasts or marked drawdowns of government assets, including government deposits at SAMA.

Public Finances: Significant increases in contingent liabilities that undermine the strength of the public-sector balance sheet offsetting improvements in narrower government measures, for example, as a result of a sustained rise in GRE debt, particularly if this might not result in productive investments in the economy.

Structural Features: A major escalation of geopolitical tensions that affects key economic infrastructure and activities over an extended period.