Saudi Arabia’s ratings reflect its strong fiscal and external balance sheets, with government debt/GDP and sovereign net foreign assets (SNFA) considerably stronger than both the ‘A’ and ‘AA’ medians, and significant fiscal buffers in the form of deposits and other public sector assets. Oil dependence, World Bank governance indicators and vulnerability to geopolitical shocks have improved but remain weaknesses. Deep and broad social and economic reforms implemented under Vision 2030 are diversifying economic activity, albeit at meaningful cost to the balance sheets.
Strong External Finances: Reserves are forecast to remain large relative to peers’, equivalent to an average of 12.8 months of current external payments in 2025 (‘A’ median 1.8 months), easing to 11.3 months by 2027. SNFA will remain a clear credit strength at 35.3% of GDP in 2027 (‘A’ median 3.1%). However, large external borrowing across the public and private sectors and a greater orientation toward domestic rather than external investment will continue the multiyear decline in the net external position and move the economy to a net external debtor of 3.4% of GDP by 2027 (‘A’ median: 6.1%).
Current Account Deficits: Fitch expects a current account deficit (CAD) of 2.9% of GDP for 2025, reflecting lower oil export revenues (due to lower prices; average Brent is forecast at USD70/b from USD79.5/b in 2024) and a continuation of import growth driven by high domestic project spending. Overall exports will increase due to continued double-digit growth in non-oil exports, but this will be outpaced by the associated rise in imports of goods, services and labour.
The deficit will widen to 4.2% of GDP in 2026, reflecting Fitch’s forecast that oil prices will fall (to USD65/b) and demand for imports and associated services and labour remain robust due to project execution. Greater domestic orientation of public funds and continued external borrowing will result in financial account surpluses that broadly offset the CAD.
Widening Budget Deficit: Fitch forecasts a budget deficit of 4% of GDP in 2025, driven by lower oil revenues reflecting lower oil prices and a significantly smaller dividend from Saudi Aramco. Non-oil revenues will be supported by the buoyancy of the non-oil economy and improved tax collection. Growth in current spending should be contained, and we expect capex to fall in line with ongoing project recalibration. We forecast a small deterioration in the deficit, to 4.1%, for 2026, in line with Fitch’s projection for lower oil prices. We expect the deficit to narrow to 3.6% in 2027 due to rising non-oil revenue, higher oil production and spending growth below nominal GDP growth.
Public Debt Rising but Low: Fiscal deficits will keep debt/GDP rising. Fitch projects debt/GDP at 29.7% of GDP at end-2025 (well below the peer median of 57.3%) and 35.1% at end-2027. The sovereign is adjusting capex to support the fiscal position, although execution of the large project pipeline and new infrastructure projects will constrain the pace for substantial cuts. Saudi Arabia has announced new non-oil tax measures this year. We are not expecting major changes to its non-oil tax policy, although there is a record of adjustments if there are revenue shortfalls.
Strong Growth: We forecast headline GDP growth to rise to 4.3% in 2025 and 4.7% in 2026 before slowing to 3.6% in 2027, driven by increases in oil production. Non-oil growth will remain buoyant, averaging 4.5% over the period, backed by reforms, capex and high spending by government-related entities. Higher oil output will benefit downstream processing industries.
Diversifying Economy: GDP has been rebased and re-estimated, with the level of 2024 headline GDP revised up by 14%, almost entirely due to a 28% increase in the non-oil private sector (now 56% of GDP). Reforms and associated public and GRE funding under Vision 2030 continue to support diversification, with new reforms in 2025 including opening land ownership to non-Saudis and the implementation of a new investment law. Nonetheless, the resilience of non-oil growth to a period of lower government and GRE spending remains to be tested.
Resilience Despite High Geopolitical Risk: Fitch considers that geopolitical risks in the Middle East remain high, and a resumption of military activity is possible. However, the conflict in June between Israel and the US on one side, and Iran on the other, did not have a discernible impact on the robust level of economic activity in Saudi Arabia. Fitch considers Saudi Arabia’s oil exports vulnerable to disruption to the Strait of Hormuz, but this did not occur despite the military hostilities. Broader changes in the region have lessened elements of geopolitical risk.
Strong Banks: Banking sector metrics remain strong; at end-1Q25 the capital adequacy ratio was 19.3% and non-performing loans 1.2% (the lowest since 2016). Profitability is high given robust credit growth and high net interest margins. The central bank has tightened macro-prudential policies in the face of rapid credit growth. As credit growth continues to outpace deposit growth, banks continue to step up external borrowing, causing a rapid deterioration in the sector’s net foreign asset position, although it is small relative to total sector assets, at 2.7%.
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 (SRM). Saudi Arabia has a medium WBGI ranking in the 54th percentile, with low scores for Voice and Accountability, and Political Stability and Absence of Violence constraining the average.
