The upgrade is backed by better governance and stronger institutions, enhancing domestic capital markets’ depth
Saudi Arabia’s stock market continued its upward trend following an upgrade in ratings by S&P. Global ratings agency S&P has upgraded Saudi Arabia’s long-term sovereign credit rating to “A+” from “A” due to the ongoing social and economic transformation in alignment with the Vision 2030 program.
Saudi Arabia’s benchmark index concluded 1.1 percent higher, driven by a 4.4 percent rise in Saudi Arabian Mining Company and a 0.6 percent increase in Al Rajhi Bank.
Upgrade driven by governance improvements
The upgrade is supported by enhanced governance effectiveness and institutional frameworks, including the deepening of 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,” stated Zahabia Gupta, director and lead analyst for Middle East and Central Asia at S&P.
Outlook remains stable amid growth
The rating agency maintained a stable outlook, owing to strong non-oil growth momentum and the evolution of domestic capital markets.
Nonetheless, S&P anticipates that the current sensitivity to oil prices will undermine fiscal and external balances through 2028.
Oil price projections indicate potential challenges
“We assume that oil prices will decline to $70 per barrel over 2025-2028, down from $81 per barrel in 2023,” Gupta remarked.
The announcement regarding a one-third reduction in Saudi Aramco dividends in 2025 is expected to further diminish oil revenue.
“We expect the fiscal deficit will widen to 4.8 percent of GDP this year, compared to 2.8 percent in 2024,” she added.
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Non-oil growth supports future prospects
Meanwhile, robust non-oil growth and increasing oil volumes from 2025 will underpin medium-term growth prospects.
“We project strong real GDP growth averaging 4 percent over 2025-2028,” Gupta indicated.
Oil production expected to rise
As OPEC+ production quotas ease starting in April, S&P forecasts that Saudi oil production will surpass 10 million barrels per day (bpd) by 2028. This figure remains significantly below the full capacity of approximately 12 million bpd.
Although Saudi Aramco has halted plans to raise its maximum sustainable capacity, it will persist in investing in the four oil fields in Dammam, Berri, Marjan, and Zuluf, as well as developing shale capacity via the Jafurah unconventional gas field.
Oil sector’s role in Vision 2030 funding
The oil sector is also directly and indirectly financing Vision 2030 through exceptional performance-linked dividends and public listings.
A secondary listing of Aramco in June 2024 helped to generate $12.4 billion for a 0.7 percent stake and followed earlier substantial stake transfers to the Public Investment Fund (PIF) and its subsidiaries.
Gupta noted that Saudi authorities will continue refining the stock exchange as a strategic platform to draw long-term capital into the nation’s key growth sectors.
Growth in capital markets anticipated
“We expect significant growth in the capital markets to be propelled by improving market liquidity and regulatory initiatives, such as the new investment law and pension fund reforms,” Gupta concluded.
Inflation projected to remain manageable
Inflation is expected to stay contained, partly due to price caps and the peg to the US dollar.
Despite the uptick in housing prices and some supply pressures, inflation will remain modest at approximately 1.9 percent over the next four years, compared to 1.7 percent in 2024, Gupta mentioned.
