Saudi Arabia Raised by S&P as Economic Diversification Pays Off

(Bloomberg) -- Saudi Arabia’s credit rating was upgraded by S&P Global Ratings for the first time in two years, as the kingdom’s efforts to diversify the economy from oil pay off.

The credit assessor moved Saudi Arabia up one level to A+ from A, according to a statement Friday. The outlook on the rating is stable. 

“The upgrade reflects our view that the ongoing 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 rating of A+ is the same as that for Japan and China, and in line with Fitch Ratings’ level for the kingdom. It’s still one level below what Moody’s Investors Service rates Saudi Arabia.

The kingdom’s $1.1 trillion economy grew 4.5% year-on-year in the fourth quarter, the quickest pace since 2022.

The government is spending heavily on Crown Prince Mohammed bin Salman’s Vision 2030 strategy. The kingdom has projected budget deficits through at least 2027 as it invests hundreds of billions of dollars on everything from electric vehicles to semiconductors and tourism resorts.

That’s as oil revenue has fallen since Russia’s invasion of Ukraine in 2022, causing the budget to swing into deficit and leading the government to issue more bonds in international debt markets.

Saudi Arabia needs Brent crude prices north of $90 a barrel this year to balance its finances, the International Monetary Fund has said. In January, the Washington-based lender downgraded its 2025 growth forecast for the kingdom to 3.3% from 4.6%. It cited the extension of oil production cuts as part of Saudi Arabia’s membership of the OPEC+ cartel.

The OPEC+ alliance, led by the Saudis and Russia, will proceed with plans to revive halted oil production after repeated delays, with increase of 138,000 barrels a day in April.

The government slashed its own forecasts for economic growth in September and sees it at 4.6% this year, and 3.5% in 2026. Growth of close to 4% over the next few years would still outpace most other growth in Group-of-20 nations.

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