Fitch Ratings has affirmed Saudi Arabia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A+’ with a Stable Outlook.
The key drivers which led to the ratings by Fitch are;
Balance Sheet Strength: 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.
Robust External Finances: Reserve coverage of current external payments was 14.4 months in 2024 and SNFA was 63.7 percent of GDP. Gross FX reserves increased in 2024 amid a small current account surplus (estimated by Fitch at 0.2 percent of GDP) and strong net inflows through the financial account.
Fitch expects current account deficits in 2025 and 2026 (averaging 2.4 percent) 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.
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.
As a result, we expect a modest decline in SNFA over our forecast period to 52.5 percent of GDP in 2026. We forecast the net external creditor position to weaken to 7 percent of GDP by 2026 from 23.7 percent in 2024, but this will also remain a strength relative to peers (projected peer median 3.5 percent).
2024 Budget Deficit Above Target: The 2024 budget deficit is officially estimated at 2.8 percent of GDP, up from 2 percent in 2023 as spending growth outpaced that of revenues, with the latter held back by oil revenues due to lower production in line with Opec+ commitments. Fitch estimates the fiscal breakeven oil price at $96 billion in 2024 and forecasts a widening in the deficit in 2025 to 3.8 percent of GDP, driven by lower oil revenues (budget target 2.3 percent).
Wider Budget Deficits: This reflects our forecast that oil prices will fall (Brent crude is forecast to fall to $70 billion in 2025 and $65 billion in 2026) and Fitch’s expectation that the Aramco extraordinary dividend (distributed in 2023 and 2024 but not budgeted for 2025) will not reoccur. Expenditure is projected to fall due to a cut in capex (boosted in 2024 by one-time land acquisition) and associated current spending.
Strong Government Balance Sheet: Fitch projects government debt/GDP to rise to 35.3 percent of GDP by end-2026, up from 29.8 percent at end-2024, but still well below the projected peer median of 55.1 percent.
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+. The flash estimate put real GDP at 1.3 percent in 2024, with the oil sector contracting by 4.5 percent.
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 percent in 2025 and 6.4 percent 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. It will be underpinned by strong reform momentum and GRE and government capex, which will push gross fixed capital formation toward a long-term high of 30 percent of GDP. Non-oil growth was 4.3 percent in 2024, led by wholesale and retail trade, transport and construction.
Fitch anticipates non-oil growth of a similar pace over 2025 and 2026. Growth should occur in a low-inflation environment. Inflation averaged 1.7 percent in 2024. Currency strength, a still negative output gap and the recalibration of government projects should keep annual average headline inflation below 2 percent.
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. There were no economic effects evident in 2024. Saudi Arabia is likely to play a role in regional reconstruction. Governance indicators, as measured by the World Bank, improved strongly in 2023 and are 10pp above their2022, 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.
