S&P upgrades Saudi Arabia's credit rating after two years on economic diversification efforts

S&P Global Ratings has raised Saudi Arabia’s credit rating for the first time in two years, citing the country’s economic diversification efforts and growth of its non-oil economy. The agency upgraded the kingdom’s rating to ‘A+’ from ‘A’ with a stable outlook on strengthened institutional settings amid Vision 2030 reforms, aligning Saudi Arabia with most ‘A’-rated peers, S&P said in a statement on Friday. “The upgrade reflects our view that the continuing social and economic transformation in Saudi Arabia is underpinned by improving governance effectiveness and institutional settings, including deepening domestic capital markets,” S&P said. “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,” the agency added. Saudi Arabia, the Arab world’s largest economy, is focused on diversifying its economy away from oil as part of the kingdom’s Vision 2030 overarching transformation agenda, which also seeks to boost employment and foreign direct investment into the country. The kingdom is focusing on tourism, health and education, and has also launched multi-billion-dollar projects to support the development of technology , property and infrastructure projects. It is also expanding its industrial and mining base. Saudi Arabia’s economy grew at the fastest pace since 2022 during the fourth quarter of last year, buoyed by expansion of both the oil and non-oil sectors. The country’s gross domestic product (GDP) grew by 4.4 per cent on an annual basis during the three-month period to the end of December “supported by the growth of key economic activities”, the kingdom’s General Authority for Statistics said in January. However, S&P expects Saudi Arabia’s fiscal deficit to widen amid a drop in oil prices. The country’s public deficit is estimated to be at 4.8 per cent of its GDP this year, up from 2.8 per cent last year, the agency said. “We assume that oil prices will fall to $70 per barrel over 2025-2028, from $81 a barrel in 202,” S&P said. “At the same time, the announcement of a decline in Saudi Aramco dividends by one third in 2025 will further dampen oil revenue.” This month, the state-run oil company slashed its dividend for this year by more than 31 per cent to $85 billion as its full-year 2024 profit dropped by 12 per cent. For the Saudi government, the largest shareholder in Aramco, these dividends serve as a crucial source of revenue, helping fund the national budget and economic diversification efforts. However, Saudi Arabia can restore some production this year as the Opec+ alliance of producers moves forward with a "gradual and flexible" rollback of voluntary production cuts totalling 2.2 million barrels per day (bpd), starting next month. Aramco currently produces about 9 million bpd of crude, below its capacity of 12 million bpd. S&P warned it might lower Saudi Arabia's credit rating if debt grows faster than expected, harming public finances. “This could be the case if we saw a combination of a sharp ramp-up in investment projects funded by debt, along with a slowdown in growth, higher borrowing costs, nd unfavourable movements in oil prices,” the agency said. The Saudi government approved an annual borrowing plan of 139 billion Saudi riyals ($37 billion) for 2025, a substantial increase from its estimate of 86 billion Saudi riyals for last year.

S&P upgrades Saudi Arabia's credit rating after two years on economic diversification efforts

The ratings agency expects the kingdom's fiscal deficit to widen this year amid a drop in oil prices