S&P Global Ratings expected the real GDP of Saudi Arabia to grow by 2.2% in 2024, and by 5% in 2025.
In its latest report seen by the Arab World Press, the rating agency said the surge in the non-oil sector will contribute an increasing share of this growth, mainly due to government-led investments in Vision 2030 projects.
On the other hand, S&P projected that banks and capital markets will contribute a significant amount in Vision 2030, which requires around $1 trillion in investment over several years.
The report stated that part of this investment will also come from the government and the Public Investment Fund (PIF).
S&P Global Ratings said it believes that investments in Vision 2030 will inevitably increase leverage in Saudi Arabia’s private sector and the broader economy. However, it noted that the pace and extent of the increase in leverage in the corporate sector remain uncertain.
The agency said lending growth in Saudi Arabia’s banking system over the past five years was primarily due to an increase in mortgages. It then attributed this reason to the lack of a material increase in publicly listed corporate debt.
Moreover, S&P said companies in Saudi Arabia have been cautious about committing to large capital expenditures due to high-interest rates.
And even though listed companies’ leverage remains manageable, S&P expected that debt is building up in the private sector among unlisted entities, and therefore would support strong corporate growth.
The agency added that the structure of corporate balance sheet debt is changing, with a growing contribution from international debt versus domestic debt.
The S&P report also showed that higher private-sector leverage in Saudi Arabia’s banking landscape could create imbalances and pose asset-quality problems in the future. However, the banking system remains in good shape, with strong overall asset-quality indicators and capitalization, it affirmed.
The report also expected banks’ good profitability and conservative dividend payouts to continue supporting their capitalization over the next one-to-two years.
In addition to raising debt, the agency said Saudi Arabia’s companies have been active in raising new equity through initial public offerings (IPOs) in 2022 and 2023.
It noted that until May 2, 13 private companies have announced potential listings on Saudi Arabia’s main market and parallel market (Nomu). In addition to strong internal cash flow generation, this will help contain the buildup of corporate debt.
Meanwhile, debt buildup in the Saudi economy will remain in focus, S&P said. It expected its growth to be gradual and concentrated with companies in the PIF portfolio.
The rating agency also noted that Saudi Arabia still faces some risks including higher-for-longer interest rates and geopolitical risks, which could mean higher spreads for the weakest companies.
