Saudi Arabia’s Debt Management Strategy: 26.2% Debt-to-GDP, Sovereign Issuance, and A+/Aa3 Credit Ratings

Saudi Arabia’s relationship with sovereign debt has transformed as dramatically as any other element of its economic framework under Vision 2030. A country that entered 2014 with virtually no external debt and minimal domestic borrowing now maintains a deliberate debt management strategy that uses international and domestic capital markets to finance transformation spending, smooth fiscal cycles, and build financial market infrastructure. The debt-to-GDP ratio has risen from near zero to approximately 26.2 percent — a level that remains conservative by international standards but represents a fundamental shift in how the Kingdom finances its operations and investments.

This shift is not a sign of fiscal weakness. It is a deliberate strategic choice that reflects the Kingdom’s assessment that borrowing at favorable interest rates to finance high-return investments is more efficient than depleting reserves or constraining spending during a critical transformation period. The international capital markets have endorsed this assessment: Saudi Arabia’s credit ratings — Aa3 from Moody’s (upgraded November 2024), A+ from S&P (upgraded March 2025), and A+ from Fitch (affirmed with stable outlook, July 2025) — are among the highest ever awarded to the Kingdom and place it firmly in the upper tier of sovereign credits globally.

Yet the trajectory of Saudi debt raises legitimate questions about sustainability, particularly given the ongoing demands of megaproject financing, the fiscal breakeven oil price above $71 per barrel, and the reduction in Aramco dividend payments that constrained government revenue in 2025. Understanding Saudi Arabia’s debt management strategy requires examining the architecture of issuance, the composition of outstanding debt, the cost of borrowing, the fiscal framework that governs borrowing decisions, and the risks that could challenge debt sustainability.

The Strategic Rationale for Sovereign Borrowing

Saudi Arabia’s decision to develop a sovereign debt program was driven by multiple strategic objectives that extend beyond simple deficit financing. The first objective is fiscal smoothing — using borrowing to maintain spending levels during periods of lower oil revenue rather than cutting expenditure, which would disrupt economic activity and delay transformation investments. Given the volatility of oil prices, borrowing allows the government to maintain a stable fiscal trajectory even when oil revenues fluctuate.

The second objective is capital market development. By issuing sovereign bonds in both domestic and international markets, Saudi Arabia creates benchmark securities that provide pricing references for corporate and financial sector issuances. A liquid government bond market is a prerequisite for a functioning corporate bond market, which in turn is essential for the capital market development that Vision 2030 targets. The government’s issuance program has directly enabled Saudi companies, banks, and PIF to access debt capital markets on favorable terms.

The third objective is reserve preservation. Rather than drawing down SAMA’s foreign currency reserves to finance fiscal deficits, the government can borrow in capital markets, preserving reserves as a stability buffer while taking on debt at interest rates that are lower than the returns SAMA generates on its reserve investments. This approach maintains the monetary stability that the riyal peg requires while providing the fiscal resources needed for transformation spending.

The fourth objective is international capital market integration. Saudi Arabia’s sovereign bond issuances — particularly international dollar-denominated bonds — create relationships with global investors, establish the Kingdom’s presence in international debt markets, and provide a mechanism for deploying Saudi Arabia’s investment story to a global audience of fixed income investors who may subsequently invest in Saudi equities, real estate, or direct business operations.

Issuance Program Architecture

Saudi Arabia’s sovereign debt issuance is managed by the National Debt Management Center (NDMC), established in 2015 as a specialized entity within the Ministry of Finance. The NDMC manages the Kingdom’s borrowing program across domestic and international markets, structures individual transactions, manages the outstanding debt portfolio, and coordinates with credit rating agencies and investor relations.

Domestic issuance takes the form of Saudi Arabian Government Bonds (SAGBs) and Islamic sukuk instruments, denominated in Saudi riyals and sold to domestic banks, financial institutions, and increasingly to retail investors. The domestic program provides regular monthly issuances across multiple tenors, creating a yield curve that serves as a benchmark for domestic financial markets. Sukuk issuances, which comply with Islamic finance principles by structuring returns through asset-backed arrangements rather than interest payments, cater to demand from Islamic investors and institutions.

International issuance consists primarily of dollar-denominated conventional bonds and sukuk sold to global institutional investors through investment bank-led syndicates. These issuances have included some of the largest sovereign bond transactions ever executed, reflecting strong international demand for Saudi credit. The Kingdom has also issued euro-denominated bonds and green bonds, diversifying its investor base and demonstrating commitment to environmental sustainability.

Green bond issuances, which earmark proceeds for environmentally sustainable projects, have attracted ESG-focused investors and demonstrated Saudi Arabia’s engagement with the sustainability agenda. While the Kingdom’s hydrocarbon economy creates tension with green financing principles, the proceeds designation for renewable energy, green buildings, clean transportation, and environmental projects provides a credible framework for green bond issuance.

PIF also operates its own borrowing program, issuing international bonds that fund the sovereign wealth fund’s investment activities independently of the government’s fiscal borrowing. PIF’s issuances benefit from the Kingdom’s sovereign credit rating but are structured as separate obligations, reflecting the fund’s distinct institutional identity and investment mandate.

Debt Composition and Maturity Profile

The composition of Saudi Arabia’s outstanding debt reflects the NDMC’s strategy of diversifying across currencies, instruments, tenors, and investor bases. Domestic debt, denominated in riyals, constitutes the majority of outstanding obligations. This structure reduces exchange rate risk since domestic debt service is paid in the same currency as government revenue.

International debt, predominantly dollar-denominated, provides access to a deeper and more diverse investor base than the domestic market alone can supply. The dollarization of international debt is natural given that oil revenues are received in dollars, creating a natural hedge between revenue and debt service currencies.

The maturity profile has been structured to avoid concentration of refinancing risk in any single year. Issuances span tenors from short-term bills to 30-year and even 40-year bonds, creating a laddered maturity schedule that distributes refinancing needs evenly across time. Longer-dated issuances lock in current interest rates for extended periods, providing certainty about future debt service costs even if interest rates rise.

The sukuk component of the portfolio serves both financial and strategic purposes. Sukuk issuances access Islamic investment pools that may not participate in conventional bond markets, broadening the investor base. They also demonstrate the Kingdom’s commitment to Islamic finance development, supporting Riyadh’s ambition to become a global Islamic finance hub.

Cost of Borrowing

Saudi Arabia’s credit ratings provide access to capital markets at interest rates that are favorable by emerging market standards. The Aa3/A+/A+ rating cluster places Saudi Arabia alongside economies like Japan, South Korea, and several European countries, enabling borrowing at spreads over US Treasury rates that reflect high creditworthiness.

The spread — the additional yield investors demand for Saudi sovereign bonds compared to US Treasury bonds of similar maturity — has narrowed as credit ratings have improved and investor confidence in the Saudi economic trajectory has strengthened. Tighter spreads translate directly into lower borrowing costs, reducing the fiscal burden of debt service and improving the economic calculus of borrowing to finance transformation investments.

Interest rate dynamics are influenced by both Saudi-specific factors and global monetary conditions. The Federal Reserve’s interest rate cycle affects the base rate for Saudi dollar-denominated borrowing, while Saudi-specific credit conditions determine the spread above that base rate. During periods of monetary tightening, as experienced in 2022-2023, total borrowing costs increase even if Saudi spreads remain stable or narrow.

The total cost of debt service — interest payments on outstanding debt — has increased in line with the growing debt stock but remains manageable as a share of government revenue. The debt service-to-revenue ratio, a key sustainability metric, has risen but remains well below the levels that would indicate fiscal stress. The ability to service debt from current revenue without requiring additional borrowing for interest payments distinguishes Saudi Arabia from more heavily indebted sovereigns where debt service crowds out productive spending.

Credit Rating Analysis

The credit rating upgrades of 2024-2025 represent external validation of Saudi Arabia’s fiscal management and economic trajectory. Each rating agency’s assessment provides different emphasis but arrives at similar conclusions about the Kingdom’s creditworthiness.

Moody’s upgrade to Aa3 in November 2024 — the highest rating Moody’s has ever assigned to Saudi Arabia — reflects the agency’s assessment of strong government financial strength, robust institutional frameworks, and improving economic diversification. The Aa3 rating places Saudi Arabia among the top tier of non-AAA rated sovereigns and above several OECD members.

S&P’s upgrade to A+ in March 2025 reflects similar factors: large fiscal buffers, progress in economic diversification, strong GDP growth, and improving institutional quality. S&P’s methodology places particular emphasis on per capita income, institutional strength, and external position — all areas where Saudi Arabia has shown improvement during the Vision 2030 period.

Fitch’s affirmation of A+ with stable outlook in July 2025 confirms the Kingdom’s rating level while the stable outlook indicates that neither upgrade nor downgrade is expected in the near term. Fitch’s assessment balances the strengths of large fiscal reserves and improving diversification against the continued dependence on oil revenue and the fiscal demands of transformation spending.

The convergence of all three agencies on positive or stable outlooks for Saudi Arabia reduces the risk of negative rating surprises that could disrupt market access or increase borrowing costs. The ratings also serve as signals to the broader investment community, influencing capital allocation decisions by sovereign wealth funds, pension funds, and institutional investors that use credit ratings as eligibility criteria for investment portfolios.

Debt Sustainability Framework

Saudi Arabia’s debt sustainability depends on the interaction of several variables: the debt-to-GDP ratio trajectory, the cost of borrowing relative to economic growth, the fiscal balance trajectory, and the availability of fiscal buffers to manage adverse scenarios.

The debt-to-GDP ratio of approximately 26.2 percent is conservative by virtually any international standard. The IMF considers debt levels below 40 percent of GDP as low risk for commodity-exporting economies. The Eurozone’s Maastricht criterion of 60 percent debt-to-GDP — which many European countries significantly exceed — is more than double Saudi Arabia’s current level. This headroom provides substantial capacity for additional borrowing if needed to finance continued transformation spending or to manage adverse economic conditions.

The cost-growth differential — the difference between the effective interest rate on government debt and the nominal GDP growth rate — is a critical determinant of debt dynamics. When GDP growth exceeds the interest rate on debt, the debt-to-GDP ratio naturally declines over time even in the presence of moderate primary deficits. Saudi Arabia’s strong GDP growth (4.5 percent in real terms in 2025, with higher nominal growth including inflation) has generally exceeded the effective interest rate on the debt portfolio, supporting favorable debt dynamics.

The fiscal balance — the difference between government revenue and expenditure before debt service — determines whether the debt stock is growing or shrinking. During periods of high oil prices and strong non-oil revenue growth, fiscal surpluses can be used to reduce debt. During periods of lower oil prices or elevated spending, deficits require additional borrowing. The path of the fiscal balance over the remaining Vision 2030 period will largely determine whether the debt-to-GDP ratio stabilizes, declines, or continues to rise.

Fiscal buffers — including SAMA reserves, PIF liquid assets, and government savings — provide additional sustainability assurance. These buffers could be used to service or repay debt in adverse scenarios, reducing the risk that temporary fiscal stress translates into debt distress. The size of Saudi Arabia’s fiscal buffers relative to its debt stock is one of the key factors supporting its high credit ratings.

Risks and Vulnerabilities

Despite the favorable sustainability metrics, Saudi Arabia’s debt trajectory faces several risks that warrant monitoring. The primary risk is a sustained period of low oil prices that reduces government revenue below the fiscal breakeven level while transformation spending commitments continue. In this scenario, fiscal deficits would require additional borrowing, potentially accelerating the debt-to-GDP trajectory beyond comfortable levels.

The megaproject spending pipeline creates committed future expenditures that limit fiscal flexibility. Once construction contracts are signed and projects are underway, stopping or slowing spending creates contractual penalties, stranded investment costs, and political embarrassment. This spending rigidity means that the government’s ability to reduce expenditure in response to revenue shortfalls is more constrained than the headline fiscal numbers might suggest.

Interest rate risk — the possibility that global interest rates increase significantly, raising the cost of new borrowing and the refinancing cost of maturing debt — could worsen debt dynamics if not managed through the maturity structure. The NDMC’s strategy of diversifying maturities and locking in longer-term rates partially mitigates this risk but cannot eliminate it entirely.

Currency risk is limited for dollar-denominated debt given the riyal-dollar peg and dollar-denominated oil revenues. However, a theoretical break of the peg — which would cause the riyal to depreciate — would increase the local currency cost of dollar-denominated debt service. While this scenario is considered extremely unlikely, it represents a tail risk that rating agencies and investors monitor.

The concentration of fiscal revenue in two sources — oil and VAT — creates vulnerability to shocks in either category. A sustained oil price decline combined with a domestic consumption slowdown that reduces VAT receipts could create revenue pressure that exceeds the government’s ability to manage through borrowing and reserve drawdowns alone.

Comparison with Regional and International Peers

Saudi Arabia’s debt metrics compare favorably with most relevant peer groups. Within the GCC, the Kingdom’s debt-to-GDP ratio is lower than Bahrain (over 100 percent), Oman (approximately 40 percent), and broadly comparable to Abu Dhabi and Qatar. The lower debt levels reflect Saudi Arabia’s larger economy, greater fiscal reserves, and higher credit ratings.

Among major oil-exporting economies globally, Saudi Arabia’s debt management stands out for its conservatism and market access. While countries like Nigeria, Angola, and Ecuador have experienced debt distress episodes, Saudi Arabia has maintained comfortable sustainability margins and investment-grade ratings throughout the Vision 2030 period.

Compared to advanced economies, Saudi Arabia’s debt-to-GDP ratio is a fraction of levels in Japan (over 250 percent), Italy (over 140 percent), the United States (over 120 percent), or France (over 110 percent). While these comparisons are imperfect — advanced economy debt dynamics differ fundamentally from commodity-exporter dynamics — they illustrate the substantial headroom that Saudi Arabia maintains relative to the levels that the international community considers acceptable for major economies.

The Role of Debt in Financing Vision 2030

Saudi Arabia’s sovereign borrowing program is best understood not as a sign of fiscal weakness but as a financial tool deployed in service of the Vision 2030 transformation. The Kingdom is essentially borrowing against the expected returns of diversification investments — using current access to low-cost capital to finance projects whose economic returns will materialize over the coming decades.

This approach mirrors the corporate finance logic of leveraged investment: if the return on invested capital exceeds the cost of debt, borrowing to finance investment creates value. For Saudi Arabia, the “return” on Vision 2030 investments includes not just financial returns but also economic diversification, employment creation, social development, and geopolitical positioning — returns that are difficult to quantify precisely but that the government and the international investment community clearly believe exceed the cost of borrowing.

The risk inherent in this approach is that the expected returns do not materialize or take longer to develop than anticipated. If diversification investments fail to generate the economic activity, tax revenue, and employment needed to sustain fiscal balance, the debt accumulated to finance those investments becomes a burden rather than an investment. The $8 billion PIF write-down on giga-project investments suggests that some investments have already fallen short of expectations.

The NDMC’s strategy of maintaining conservative debt levels, diversifying the portfolio, managing maturity risk, and building relationships with global investors provides a robust framework for continuing to use debt strategically while maintaining sustainability. Saudi Arabia’s debt management discipline — reflected in the progressive credit rating upgrades — demonstrates that the Kingdom is capable of balancing borrowing ambitions with fiscal prudence. The challenge is maintaining that balance as the demands of the transformation continue to grow and the fiscal environment evolves with oil market conditions.