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US Report: Saudi Economic Diversification Appear to be Starting to Bear Fruit

Continued progress with economic diversification will require the deepening of ongoing reforms - SPA
Continued progress with economic diversification will require the deepening of ongoing reforms - SPA
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US Report: Saudi Economic Diversification Appear to be Starting to Bear Fruit

Continued progress with economic diversification will require the deepening of ongoing reforms - SPA
Continued progress with economic diversification will require the deepening of ongoing reforms - SPA

In its most recent report, the Arab Gulf States Institute in Washington reveals that Saudi Arabia's diversification efforts are bearing fruit, while also underscoring the enduring signs of progress within the Kingdom.

The report's author, Tim Callen, former assistant director in the Middle East and Central Asia department at the International Monetary Fund, says that countries who are as heavily reliant on oil exports as Saudi Arabia have found economic diversification very difficult, stressing however, that only few "have approached the challenge with such strong political commitment, such a comprehensive plan, and the vast resources to finance the needed investment as Saudi Arabia."

Callen says that the Saudi government has implemented an impressive list of economic reforms under Vision 2030, including improving the business climate and legal framework. He also highlighted how the Kingdom worked on reducing restrictions on women’s employment, strengthening domestic capital markets, reducing energy subsidies, and developing new sectors of the economy, such as tourism.

"Evaluating progress across four dimensions – exports, output, government revenue, and employment – reveals that, although oil remains a dominant force in the Saudi economy, the kingdom’s diversification efforts appear to be starting to bear fruit."

- Exports The report says oil (crude and refined products) still dominated the Saudi economy in 2022, accounting for 74% of total exports of goods and services, but this is well below the 84% average share in 2012-13. Most of the decline in the share of oil in Saudi exports is due to the expansion of petrochemical exports and tourism.

"The share of petrochemicals rose from 9% of goods and service exports in 2012-13 to 12% in 2022. Travel exports (what Saudi Arabia receives from non-nationals visiting the country) increased from 2% in 2012-13 to 5% in 2022," it added.

- Output

The private sector’s share of the kingdom’s nominal gross domestic product grew from 37% in 2012-13 to 39% in 2022. The non-oil sector, which includes the public and private sectors, made up 56% of GDP in 2022, up from just under 52% in 2012-13. Correspondingly, the private sector’s share of GDP in real terms (after adjusting for price effects) was 41% in 2022, compared to 39% in 2012-13.

- Govt. Revenue

The report notes that Saudi Arabia hwe achieved substantial advancements in diversifying the channels of government budget revenue, saying "non-oil revenue rose to 32% of total government revenue in 2022, up from less than 10% in 2012-13. The introduction of the value-added tax in 2018 and the rate increase from 5% to 15% in 2020 have provided most of the boost to non-oil revenue."

- Employment

Saudi workers accounted for 23% of total employment (Saudi and non-Saudi) in the private sector at the end of 2022, compared to 16% in 2016 (the earliest year for which data is available). The share of Saudi workers identified as employed in the public sector fell to 42% at the end of 2022, down from 45% in 2016.

The report stressed that Saudi Arabia’s diversification efforts "do seem to be bearing fruit, with progress in all four areas considered."

"Looking forward, continued progress with economic diversification will require the deepening of ongoing reforms and their consistent implementation to raise productivity in the economy."

 

 

 

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Saudi Arabia Raises $12 Billion in International Bonds Amid Strong Demand

Skyscrapers are seen in King Abdullah Financial District in the Saudi capital, Riyadh. (Reuters).
Skyscrapers are seen in King Abdullah Financial District in the Saudi capital, Riyadh. (Reuters).
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Saudi Arabia Raises $12 Billion in International Bonds Amid Strong Demand

Skyscrapers are seen in King Abdullah Financial District in the Saudi capital, Riyadh. (Reuters).
Skyscrapers are seen in King Abdullah Financial District in the Saudi capital, Riyadh. (Reuters).

Saudi Arabia has raised $12 billion from global debt markets in its first international bond issuance of the year, attracting bids worth nearly $37 billion. This demonstrates strong investor appetite for Saudi debt instruments.

The issuance comes just two days after the approval of the 2025 annual borrowing plan by Minister of Finance Mohammed Al-Jadaan. The plan estimates financing needs for the fiscal year at SAR 139 billion ($37 billion). The funds will be used to cover the projected SAR 101 billion ($26.8 billion) budget deficit for 2025, as well as repay SAR 38 billion ($10 billion) in principal debt obligations due this year.

The National Debt Management Center (NDMC) announced on Tuesday that the issuance includes three tranches: $5 billion in three-year bonds, $3 billion in six-year bonds, and $4 billion in ten-year bonds. Total demand for the bonds reached $37 billion, exceeding the issuance size by three times and reflecting robust investor interest.

The NDMC emphasized that this issuance aligns with its strategy to broaden the investor base and efficiently meet Saudi Arabia’s financing needs in global debt markets.

According to IFR, a fixed-income news service, the initial price guidance for the three-year bonds was set at 120 basis points above US Treasury yields. The six-year and ten-year bonds were priced at 130 and 140 basis points above the same benchmark, respectively.

Strong demand allowed Saudi Arabia to lower yields on the shorter-term bonds, further demonstrating investor confidence. Economists noted that the pricing above US Treasuries is attractive in the current market, showcasing trust in Saudi Arabia’s economic stability and financial strategies.

International confidence

Economic experts view this successful bond issuance as a testament to international confidence in Saudi Arabia’s robust economy and financial reforms. Dr. Mohammed Al-Qahtani, an economics professor at King Faisal University, said the move underscores Saudi Arabia’s commitment to diversifying financing tools both domestically and internationally. He added that the funds would support Vision 2030 projects, reduce pressure on domestic resources, and attract strong international investor interest.

The issuance strengthens Saudi Arabia’s ability to meet financial needs, expand its investor base, and establish a global financing network, he said, noting that it also facilitates entry into new markets, enabling the Kingdom to accelerate infrastructure projects and capital expenditures.

Dr. Ihsan Buhulaiga, founder of Joatha Business Development Consultants, described the 2025 budget as expansionary, aimed at meeting the financing needs of economic diversification programs. He stressed that the budget deficit is an “optional” one, reflecting a deliberate choice to prioritize Vision 2030 initiatives over immediate fiscal balance.

Buhulaiga explained that the Kingdom’s approach balances two options: limiting spending to available revenues, which would avoid deficits but delay Vision 2030 initiatives, or borrowing strategically to fund Vision 2030 goals. He said that the annual budget is just a component of the larger vision, which requires sustained funding until 2030.

He continued that Saudi Arabia’s fiscal space and creditworthiness allow it to borrow internationally at competitive rates, explaining that this flexibility ensures financial sustainability without compromising stability, even during challenges like the COVID-19 pandemic.

Saudi Arabia’s debt portfolio remains balanced, with two-thirds of its debt domestic and one-third external. As of Q3 2024, public debt stood at approximately SAR 1.2 trillion, below the 30% GDP ceiling. According to the Ministry of Finance, the budget deficit is expected to persist through 2027 but remain below 3% of GDP.

Buhulaiga highlighted the importance of capital expenditure, which reached SAR 186 billion in 2023 and is projected to rise to SAR 198 billion in 2024, a 6.5% increase.

He emphasized the government’s pivotal role in economic diversification, supported by investments from the Public Investment Fund (PIF), the National Development Fund, and its subsidiaries, including the Infrastructure Fund.

The PIF recently announced a $7 billion Murabaha credit facility, facilitated by Citigroup, Goldman Sachs International, and JPMorgan. Meanwhile, the NDMC arranged a $2.5 billion revolving credit facility earlier in January, compliant with Islamic principles, to address budgetary needs.

In November, Moody’s upgraded Saudi Arabia’s credit rating to Aa3, aligning with Fitch’s A+ rating, both with a stable outlook. S&P Global assigns the Kingdom an AA-1 rating with a positive outlook, reflecting a high ability to meet financial obligations with low credit risk.

The IMF estimates Saudi Arabia’s public debt-to-GDP ratio at 26.2% in 2024, describing it as low and sustainable. This is projected to rise to 35% by 2029 as foreign borrowing continues to play a key role in financing deficits.