Saudi Arabia's stock market rises after S&P upgraded credit rating to 'A+'

The Saudi Arabian stock market continued its upward trend after international rating agency Standard & Poor's (S&P) upgraded Saudi Arabia's sovereign credit rating. S&P raised Saudi Arabia's long-term sovereign credit rating from "A" to "A+", citing Saudi Arabia's ongoing social and economic transformation in line with the "Vision 2030" plan. This rating upgrade reflects the international community's positive recognition of Saudi Arabia's economic reforms.

The Saudi benchmark index closed up 1.1%, driven by a 4.4% increase in the share price of Saudi Arabian Mining Company and a 0.6% increase in the share price of Al Rajhi Bank. This stock market increase further solidifies Saudi Arabia's position as a regional investment hub.

The rating upgrade is attributed to the strengthening of Saudi Arabia's governance efficiency and institutional framework, including the deepening of domestic capital markets. Zahabia Gupta, S&P's Director and Lead Analyst for the Middle East and Central Asia, stated, "We believe that as 'Vision 2030' progresses, institutional checks and balances are becoming more apparent, as reflected in the realignment of project priorities and timelines."

S&P maintained a stable outlook for Saudi Arabia, citing strong non-oil growth momentum and the development of domestic capital markets. However, S&P expects that the current sensitivity to oil prices will weaken fiscal and external balances by 2028. Gupta stated, "We expect oil prices to fall to $70 per barrel in 2025-2028, down from $81 per barrel in 2023."

The announcement of a one-third reduction in Saudi Aramco's 2025 dividend is expected to further reduce oil revenues. Gupta added, "We expect the fiscal deficit to widen to 4.8% of GDP this year, compared to 2.8% in 2024." Meanwhile, strong non-oil growth and increased oil production from 2025 will support the medium-term growth outlook. Gupta stated, "We expect real GDP to grow by an average of 4% in 2025-2028."

As OPEC+ production quotas are relaxed starting in April, S&P forecasts that Saudi oil production will exceed 10 million barrels per day by 2028. Nevertheless, this figure remains well below the full capacity of approximately 12 million barrels per day. While Saudi Aramco has halted plans to increase its maximum sustainable capacity, it will continue to invest in the Dammam, Berri, Marjan, and Zuluf oil fields, and develop shale capacity through the Jafurah unconventional gas field.

The oil sector also directly and indirectly funds "Vision 2030" through performance-linked special dividends and public listings. Saudi Aramco's secondary listing in June 2024 raised $12.4 billion for a 0.7% stake, following substantial share transfers to the Public Investment Fund (PIF) and its subsidiaries. Gupta noted that Saudi authorities will continue to refine the stock exchange, making it a strategic platform for attracting long-term capital into the country's key growth sectors.

Gupta concluded, "We expect significant growth in capital markets, driven by improved market liquidity and regulatory initiatives such as the new investment law and pension fund reforms." Inflation is expected to be contained, partly due to price caps and the peg to the US dollar. Despite rising housing prices and some supply pressures, inflation will remain at a moderate level of around 1.9% over the next four years, compared to 1.7% in 2024.