The credit rating agency Moody’s Ratings recently upgraded Saudi Arabia’s credit rating to ‘Aa3’ from ‘A1’ in local and foreign currency, with a stable outlook. In its latest report, Moody’s attributed the upgrade to the Kingdom’s ongoing progress in economic diversification and the robust growth of its non-oil sector.
Over time, the advancements are expected to reduce Saudi Arabia’s exposure to oil market developments and long-term carbon transition on its economy and public finances. The rating agency also revised the country’s outlook to stable from positive, citing uncertainty regarding global economic conditions and oil market developments.
“The upgrade reflects our assessment that economic diversification has continued to progress, and the momentum will be sustained,” Moody’s said in its statement.
Debt-to-GDP ratio to rise to 35 percent by 2030
Moody’s commended Saudi Arabia’s financial planning within the fiscal space, emphasizing its commitment to prioritizing expenditure and enhancing spending efficiency. Additionally, the government’s ongoing efforts to utilize available fiscal resources to diversify the economic base through transformative spending are instrumental in supporting the sustainable development of the Kingdom’s non-oil economy and maintaining a strong fiscal position.
The Saudi government has also ramped up debt issuances this year. Its debt-to-GDP ratio will likely rise to 35 percent by 2030, according to Moody’s. Even with the projected increase in debt, the Kingdom’s government debt will likely remain lower than Aa2-A1 peers by the end of 2026, and it will continue to benefit from the presence of sizeable government financial assets.
Despite the kingdom’s upgrade and positive fiscal indicators, “global growth and broader oil market developments are not conducive to high levels of public spending”, according to the Moody’s statement.
“A large decline in oil prices or production could intensify the trade-off between progress in economic diversification and fiscal prudence, potentially leading to a weaker sovereign balance sheet than we currently assume,” Moody’s added. Ongoing regional conflict may also pose risks for the sovereign’s outlook, according to the rating company.
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Non-oil GDP to expand by 4-5 percent
In its report, the agency noted that the planning and commitment underpin its projection of a relatively stable fiscal deficit, which could range between 2-3 percent of gross domestic product (GDP).
Moody’s expected the non-oil private-sector GDP of Saudi Arabia to expand by 4-5 percent in the coming years, positioning it among the highest in the Gulf Cooperation Council (GCC) region, an indication of progress in the diversification efforts reducing the Kingdom’s exposure to oil market developments.
In recent years, Saudi Arabia achieved multiple credit rating upgrades from global rating agencies. In September, S&P revised Saudi Arabia’s outlook to positive from stable due to a strong non-oil growth outlook and economic resilience.
These advancements reflect the Kingdom’s ongoing efforts toward economic transformation, structural reforms, and the adoption of fiscal policies that promote financial sustainability, enhance financial planning efficiency, and reinforce the Kingdom’s strong and resilient fiscal position.
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