Fitch affirms Saudi rating on its robust balance sheet

Reuters/Faisal al Nasser

Fitch Ratings has maintained Saudi Arabia’s rating at “A+”, supported by the kingdom’s robust fiscal and external balance sheets, including stronger debt-to-GDP ratio and sovereign net foreign assets.

The affirmation is supported by significant fiscal buffers and other public sector assets. This reflects improved governance through ongoing social and economic reforms and efforts to enhance efficiency across government institutions.

“Oil dependence, low World Bank governance indicators and vulnerability to geopolitical shocks remain relative weaknesses,” the ratings agency said.

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The gross government debt-to-GDP ratio rose to 26.5 percent of the estimated GDP in 2023 but remained low.

“We forecast that government debt/GDP will increase to 28 percent in 2024 and 30 percent in 2025. This assumes that Brent crude oil prices average $80 per barrel in 2024 and $70 per barrel in 2025, contributing to budget deficits and constraining nominal GDP.”

Fitch expects a budget deficit of 2.3 percent of GDP in 2024, slightly exceeding the 1.9 percent target. 

“We expect spending 3.5 percent above budget, at SAR1.3 trillion on higher capital expenditure and procurement. Revenue will be supported by performance-related dividends from Aramco.”

The budget deficit is forecast at 2.8 percent of GDP in 2025, as spending is in line with budget plans, lower oil prices and higher oil production of 10 million barrels per day.”

Last month, the Saudi energy ministry asked the world’s largest oil company Saudi Aramco, to ditch a plan to ramp up its maximum sustainable production capacity from 12 million barrels per day (bpd) to 13 million bpd by 2027.

Despite oil dependence being a ratings weakness, crude revenue is projected to be about 60 percent of total budget revenue in 2024-25.

While the fiscal break-even oil price has risen in recent years, Fitch anticipates prices to stay above $90 per barrel in 2024 before declining to $85 in 2025.