Fitch Affirms Saudi Arabia at ‘A+’ with Stable Outlook
Fitch Ratings has affirmed Saudi Arabia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A+’ with a stable outlook.
The rating reflects strong fiscal and external balance sheets, with government debt/GDP and sovereign net foreign assets (SNFA) considerably stronger than the ‘A’ and ‘AA’ medians, and significant fiscal buffers in the form of deposits and other public sector assets.
Oil dependence and World Bank Governance Indicators (WBGI) have improved but remain weaknesses, according to Fitch. However, the ratings noted that geopolitical risk is high for Saudi Arabia, but the economy and public finances have been resilient to the US-Iran war.
Fitch acknowledged that a deal between the US and Iran allowing for a ceasefire and the reopening of the Strait of Hormuz is broadly in place, although flare-ups highlight risks to its near-term sustainability.
“We believe Iran’s nuclear programme and capabilities will remain a source of tension in its relations with the US and Israel and further US or Israeli military actions against Iran remain quite likely, although it is less clear whether these would lead to a repeat of the recent escalated regional conflict”.
Fitch expects the reopening of the Strait to return the oil market to oversupplied, pulling down Brent to an average of USD60/b in 2028 from USD87/b in 2026.
Ratings analysts forecast that Saudi Arabia’s real GDP growth will slow to 0.6% in 2026 due to disruption to trade caused by the closure of the Strait.
Fitch said flows through the East-West pipeline supported oil production during the war and expects output to be ramped up to meet external demand following the reopening of the Strait and to rebuild domestic stocks, but at an annual average of 9m b/d it will be below the 2025 level.
Non-oil growth will be hit by an inability to export petrochemicals during the closure of the Strait, but consumer spending held up, and business confidence is recovering. Fitch said Saudi Arabia’s growth will rebound in 2027 as the normalisation of flows through the Strait allows higher oil and petrochemicals production, before easing to 2.9% in 2028
The phased opening of gigaprojects (many of which have launched initial operations), the proximity of key events and guidance that the Public Investment Fund will keep domestic spending largely unchanged in its new five-year plan, will also support growth.
Ratings analysts said this will be balanced by project recalibration, lower government capex and slower credit growth. It is too early to discern medium-term impacts from the war on growth. Saudi Arabia has limited exposure to confidence-sensitive sectors such as tourism; exploiting its logistical advantages offers some upside. The fiscal deficit is projected to narrow in 2026 owing to higher oil revenues, as prices will offset lower volumes.
“Spending will also rise, reflecting the impact of the war, but much of the jump in 1Q was the precautionary frontloading of spending from later in the year”.
Fitch forecasts that lower oil revenues will widen the deficit to 4.7% in 2027, consistent with a fiscal breakeven oil price of USD94/b.
Spending is expected to decline in 2027, due to an easing of war-related pressures, lower capex and ongoing efforts to reduce rigidities in current spending. Expenditure adjustment will allow the deficit to narrow in 2028 despite a projected further fall in oil prices.
Fitch said its fiscal projections are consistent with a further increase in debt/GDP, which analysts project at 41.3% at end-2028 (projected peer median of 58.1%), from 31.8% at end-2025. based on deposits remaining around 10% of GDP.
Fitch’s debt projection is above the government’s guidance of a ceiling of 40% and fiscal policy will be tested by lower oil prices and a record of missing budgetary targets. Borrowing by government-related entities will continue to rise, but from a very low base and within prudent limits.
“We project reserves will be broadly stable in nominal terms at 11.6 months of current external payments in 2026, well above the peer median of 1.9 months, and staying broadly stable over the forecast period”.
SNFA will decline due to higher borrowing, but remain a clear credit strength, at 38.5% of GDP at end-2028 against a projected peer median of -0.9%. However, large external borrowing will move the economy to a net external debtor position in 2027 that will be slightly above the peer median.
Fitch forecasts a small current account surplus for 2026 due to higher oil export revenues. Lower oil prices and ongoing domestic demand growth that has a heavy component of imported goods, services and labour, will lead to a deficit of 5% of GDP by 2028.
Current account deficits will be financed by external borrowing and the ongoing reorientation of public assets to domestic from foreign investments.
Banks have been resilient to the war and did not require any support measures from the central bank. At end-1Q, non-performing loans were 1.1% and the Tier 1 capital ratio 19.2%, both improved from end-2024.
Credit growth has slowed, particularly mortgages, in response to policy measures, and is being outpaced by deposit growth. This should continue to slow the widening of the sector’s net external creditor position.
Fitch maintained its mid-year 2026 sector outlook for Saudi banks at ‘neutral’, despite moving the regional outlook to ‘deteriorating’. Airtel Africa Makes History, Market Value Tops N21trn
