Overall Rating: B+

For full strategic analysis, see the fiscal sustainability priority. Related coverage: economic diversification, regulation, benchmark comparisons.

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Progress Assessment

Fiscal sustainability has been a foundational enabler of Vision 2030, and the B+ rating reflects the significant progress made in reducing Saudi Arabia’s fiscal vulnerability to oil price movements. Non-oil revenue has surged from SAR 166 billion to SAR 402 billion, a 142 percent increase driven by VAT implementation at 15 percent, expatriate levies, government service fees, dividend income from PIF investments, and improved tax administration. This structural shift has fundamentally changed the revenue composition of the Saudi state.

The fiscal balance has improved dramatically from a deficit of 15.8 percent of GDP in the oil price crisis year of 2016 to a manageable deficit of 2.3 percent. While the Kingdom has not yet achieved the balanced budget target, the trajectory is strongly positive and the deficit is well within sustainable parameters for a AAA-adjacent sovereign. Government debt has risen from a negligible 1.6 percent of GDP to 26.2 percent, reflecting a deliberate strategy to use sovereign debt markets rather than reserves to fund transformation spending, preserving fiscal buffers while maintaining investment momentum.

The fiscal breakeven oil price, the price at which the government budget balances, has declined from approximately $95 per barrel to $72. This is a critical metric for investors and rating agencies, as it measures the Kingdom’s fiscal vulnerability to oil market disruptions. While $72 remains above the $55 target, the trajectory of non-oil revenue growth implies continued improvement even if oil prices are volatile. The combination of revenue diversification, spending discipline, and strategic debt management has strengthened Saudi Arabia’s sovereign credit profile.

Key Achievements

• Non-oil revenue increased 142% from SAR 166B to SAR 402B
• Budget deficit reduced from 15.8% of GDP to 2.3%, approaching fiscal balance
• VAT implemented at 15%, becoming a major and stable revenue source
• Fiscal breakeven oil price reduced from $95 to $72 per barrel
• Sovereign debt programme established with successful international bond issuances
• Government reserves maintained at 31 months of spending, well above minimum threshold
• Expenditure Efficiency Centre driving procurement savings across government
• National Revenue Authority improving tax collection and compliance
• Green bond and sukuk issuances diversifying sovereign funding sources
• Fuel and energy subsidy reform delivering structural spending reduction
• Zakat, Tax and Customs Authority modernisation improving collection efficiency
• Fiscal Balance Programme delivering measurable savings across government operations

Risks and Challenges

• Non-oil revenue target of SAR 530B requires continued growth at approximately 8% annually
• Government debt rising to 26.2% creates interest payment obligations that reduce fiscal flexibility
• Transformation spending through PIF and giga-projects creating contingent fiscal liabilities
• Oil price decline below $60 would strain fiscal balance despite diversification progress
• VAT at 15% approaching the tolerance threshold for consumer and business acceptance
• Expatriate levy adjustments required to balance revenue with labour market needs
• PIF dividend and investment income dependent on portfolio performance
• Global interest rate environment affecting sovereign debt service costs
• Fiscal rule framework not yet formally legislated, relying on policy commitment
• Spending pressure from population growth, infrastructure maintenance, and social commitments

Outlook

Fiscal sustainability is a priority where the structural foundations are strong but continued discipline is essential. The non-oil revenue trajectory suggests the SAR 530 billion target is achievable if current growth rates are maintained, though it will require the Saudi economy to continue expanding and new revenue sources such as corporate income tax reform to be explored. The fiscal breakeven oil price should continue declining as non-oil revenue grows, potentially reaching the low $60s by 2030.

The principal risk is a combination of lower oil prices and slower non-oil revenue growth creating a fiscal squeeze that forces trade-offs between transformation spending and fiscal balance. Saudi Arabia’s sovereign balance sheet, with PIF assets exceeding $940 billion and manageable debt levels, provides substantial buffers. An upgrade to A- would require the fiscal breakeven oil price to fall below $65 and non-oil revenue to exceed SAR 450 billion, both of which are achievable in a favourable economic scenario.