Saudi Arabia's debt capital market poised to exceed $500 billion by end of 2025: Report

A new report indicates that Saudi Arabia's active performance in the debt market is expected to continue this year. The size of Saudi's debt capital market is projected to exceed $500 billion by the end of 2025, reflecting sustained investor confidence.

Fitch Ratings highlights that this growth will be driven by the "Vision 2030" initiative, as well as Saudi Arabia's efforts to diversify its economy and implement reforms. These strategic initiatives are crucial for attracting investment and fostering sustainable economic development.

In 2024, Saudi Arabia emerged as the largest exporter of dollar-denominated debt among emerging markets (excluding China), ranking among the top globally for dollar instrument exports. This achievement underscores the Kingdom's growing prominence in international financial markets.

Fitch has affirmed Saudi Arabia's credit rating at A+ with a stable outlook. The agency noted in its report that Saudi Arabia's credit rating reflects its strong financial position, with its debt-to-GDP ratio and net sovereign foreign assets above the average for "A" and "AA" rated countries.

Furthermore, Saudi Arabia possesses substantial financial reserves, including deposits and other public sector assets. The agency stated that it expects Saudi Arabia's net foreign sovereign assets to reach 63.7% of GDP in 2024-2025, significantly higher than the average of "A" rated countries (8.7% of GDP).

Fitch anticipates that government debt as a percentage of GDP will increase from 29.8% at the end of 2024 to 35.3% by the end of 2026. Nevertheless, this figure remains well below the projected peer median of 55.1%. We estimate that government deposits at the Saudi Central Bank (SAMA), including the government's current account and fiscal reserves, accounted for 10.3% of GDP at the end of 2024.

Contingent liabilities are also increasing as government-related entities (GREs), particularly the Public Investment Fund (PIF), increase borrowing. However, these liabilities are overshadowed by GRE assets, with PIF debt accounting for only 4.4% of its assets as of the end of the third quarter of 2024.

Oil production is constrained following the OPEC+ agreement to cut production, with overall economic growth expected to rebound in 2025. Preliminary estimates indicate a real GDP growth rate of 1.3% in 2024, with the oil sector contracting by 4.5%. Oil production is projected to align with the OPEC+ agreement from December 2024, leading to a 2.7% growth in the oil sector in 2025 and 6.4% in 2026.

The drivers of non-oil GDP growth appear robust, diversified, and resilient to the expected decline in oil prices over Fitch's forecast period. This growth will be further supported by strong reform momentum and capital expenditure by government-related entities (GREs) and the government, driving gross fixed capital formation to a long-term high of 30% of GDP. In 2024, non-oil growth was 4.3%, primarily driven by wholesale and retail trade, transportation, and construction.

Fitch also expects non-oil growth to maintain a similar pace in 2025 and 2026 in a low-inflation environment. The average inflation rate in 2024 was 1.7%. Currency strength, a persistent negative output gap, and the realignment of government projects should keep the annual average headline inflation rate below 2%.