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S&P raises Saudi Arabia’s rating to A+ on economic overhaul

Global ratings agency S&P has raised Saudi Arabia’s long-term sovereign credit rating to “A+” from “A”  due to the ongoing social and economic transformation in line with the Vision 2030 programme.

The upgrade 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,” said Zahabia Gupta, Director and Lead Analyst for Middle East and Central Asia, S&P.

The rating agency kept the outlook stable, thanks to strong non-oil growth momentum and developing domestic capital markets.

However, S&P expects that the current sensitivity to oil prices will weaken fiscal and external imbalances through 2028.

“We assume that oil prices will fall to $70 per barrel over 2025-2028, from $81 per barrel in 2023,” Gupta said.

The announcement of a decline in Saudi Aramco dividends by one third in 2025 will further dampen oil revenue.

“We expect the fiscal deficit will widen to 4.8% of GDP this year, from 2.8% in 2024,” she said.

Meanwhile, strong non-oil growth and rising oil volumes from 2025 will support medium-term growth prospects.

“We project strong real GDP growth averaging 4% over 2025-2028,” Gupta said.

As OPEC+ production quotas ease from April, S&P forecasts Saudi oil production to increase to above 10 million barrels per day (bpd) by 2028. This level is still far below the full capacity of about 12 million bpd.

Although Saudi Aramco has suspended plans to increase its maximum sustainable capacity, it will continue investing in the four oil fields in Dammam, Berri, Marjan, and Zuluf and developing shale capacity via the Jafurah unconventional gas field.

The oil sector is also directly and indirectly funding Vision 2030, through exceptional performance-linked dividends and listings.

A secondary listing of Aramco in June 2024 helped to raise $12.4 billion for a 0.7% stake and followed earlier large stake transfers to the Public Investment Fund (PIF) and its subsidiaries.

Gupta said that Saudi authorities will continue to develop the stock exchange as a strategic platform to attract long-term capital to the country’s key growth industries.

“We expect significant growth in the capital markets to be driven by improving market liquidity and regulatory initiatives, such as the new investment law and pension fund reforms,” she added.

Inflation will remain contained partly due to price caps and the peg to the US dollar.

Despite rising housing prices and some supply pressures, inflation will stay modest at about 1.9% over the next four years, relative to 1.7% in 2024, Gupta stated.