Zahabia Gupta from S&P Global Ratings explains why the ratings agency upped Saudi Arabia's credit rating to A+, despite some headwinds from lower oil prices, a possible global economic slowdown, and any resulting impact on fiscal deficits.

Riyadh

Saudi Arabia, along with Bahrain and Oman, faces economic challenges due to declining oil prices, with rates dropping to approximately $60 per barrel recently. This reduction in oil prices stems from dual shocks: tariffs announced by the U.S. and OPEC's decision to increase production. These developments have significant implications for the fiscal deficits of these countries, particularly Saudi Arabia, which has a fiscal break-even point closer to $100 per barrel.

Despite these challenges, S&P Global Ratings has recently upgraded Saudi Arabia’s credit rating to A+. This decision reflects a recognition of the country’s institutional improvements and ongoing economic diversification efforts, including social liberalization and labor market reforms under Vision 2030. Saudi Arabia, like other Gulf Cooperation Council (GCC) countries such as Abu Dhabi, Qatar, and Kuwait, benefits from substantial asset buffers in its sovereign wealth funds, which provide some insulation against sustained low oil prices.

Current fiscal deficits are a concern, with projections indicating a deficit of around 4.6 percent of GDP this year, stabilizing at approximately 4 percent over the next three years. However, Saudi Arabia’s debt-to-GDP ratio remains relatively low, estimated at around 30 percent, and the country maintains a net asset position of about 50 percent of GDP. Continued government policy responses, including potential scaling back of projects, are expected to mitigate immediate fiscal pressures. S&P emphasizes the importance of these policy choices over time, noting the significance of how both the oil prices and policy responses will shape future credit ratings.



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