Saudi Arabia’s 2025 borrowing strategy signals a delicate balancing act between fiscal discipline and ambitious economic transformation. The kingdom’s recent announcement of 218 billion riyals ($58.1 billion) in financing needs represents a critical juncture in Crown Prince Mohammed bin Salman’s Vision 2030 agenda – a comprehensive blueprint designed to wean the country off oil dependency.
The finance ministry’s detailed borrowing plan, approved Wednesday, outlines how Saudi Arabia intends to navigate global market uncertainties while maintaining its development trajectory. Ministry officials confirmed the government will seek 150 billion riyals through debt instruments, with the remaining 68 billion riyals coming from government reserves and accounts.
This strategic borrowing approach comes against the backdrop of fluctuating oil prices, which still account for roughly 80% of Saudi export revenue despite diversification efforts. According to data from the Saudi Central Bank, the kingdom’s foreign reserves stood at approximately $429 billion as of November, providing substantial financial cushion despite the borrowing needs.
“The Saudi borrowing strategy represents a calculated approach to balancing fiscal sustainability with economic development imperatives,” notes Edward Meyer, chief economist at Capital Markets Research. “They’re essentially deploying debt strategically rather than drawing down reserves too aggressively.”
The ministry statement emphasized that Saudi Arabia’s debt-to-GDP ratio remains manageable at about 25.9%, well below danger levels for emerging economies. This provides the kingdom with significant borrowing capacity while maintaining its investment-grade sovereign credit ratings – currently A1 from Moody’s and A from Fitch.
What’s particularly noteworthy is how the borrowing plan aligns with Vision 2030 objectives. The initiative encompasses more than 300 specific targets across government restructuring, housing expansion, and private sector growth. Major infrastructure projects like NEOM, the $500 billion futuristic city, and the entertainment-focused Qiddiya development, remain central to this transformation vision.
Finance Minister Mohammed al-Jadaan has consistently emphasized that borrowing decisions are made within a sustainable fiscal framework. “This borrowing strategy supports our development objectives while maintaining fiscal buffers against external shocks,” he stated in the announcement.
Market observers point to Saudi Arabia’s successful $12 billion international bond issuance in January 2023, which was oversubscribed nearly four times, as evidence of continued investor confidence. The kingdom’s debt management office has been gradually extending its yield curve and diversifying its investor base beyond traditional markets.
The International Monetary Fund’s recent assessment projects Saudi GDP growth at approximately 2.7% for 2025, a modest but sustainable pace given global economic headwinds. However, the Fund has cautioned about dependence on hydrocarbon revenue amid energy transition pressures.
Economists at Goldman Sachs estimate that Saudi Arabia requires oil prices around $81 per barrel to balance its budget in 2025. With Brent crude currently hovering near $75, this underscores why borrowing remains necessary despite significant fiscal reforms implemented since 2015.
“What we’re seeing is Saudi Arabia leveraging its strong sovereign position to fund transformation, rather than implementing austerity measures that could derail growth,” explains Sarah Westbrook, sovereign debt analyst at Emerging Markets Intelligence. “It’s a high-stakes strategy that acknowledges transformation requires significant upfront investment.”
The Saudi debt strategy also reflects shifting global capital flows. With Western central banks potentially beginning easing cycles, emerging market sovereign debt could become more attractive to yield-seeking investors. This timing potentially benefits Saudi Arabia’s borrowing plans.
Beyond pure financing considerations, the borrowing strategy reveals deeper structural changes within the Saudi economy. The Public Investment Fund, the kingdom’s sovereign wealth vehicle with assets exceeding $700 billion, continues aggressive investment both domestically and internationally, focusing on technology, renewable energy, and tourism ventures.
Recent economic indicators show promising diversification progress. Non-oil GDP grew 3.6% year-on-year in the third quarter of 2023, according to the General Authority for Statistics, outpacing overall economic growth – a trend officials hope will accelerate with continued investment.
The borrowing plan also addresses demographic pressures. With approximately 70% of Saudis under 35 years old, job creation remains paramount. The unemployment rate among Saudi nationals has declined from 12.9% in 2018 to around 8.5% currently, but further progress requires sustained economic diversification.
Capital markets observers anticipate Saudi Arabia will approach both domestic and international markets strategically throughout 2025, likely issuing sukuk (Islamic bonds) alongside conventional instruments to broaden investor appeal. The debt management office has indicated it will monitor market conditions closely to optimize issuance timing.
While the borrowing plan reflects confidence in Saudi Arabia’s economic trajectory, risks remain. Geopolitical tensions in the region, global economic slowdowns, and longer-term energy transition challenges could impact execution. Nevertheless, the kingdom’s substantial reserves and relatively low debt burden provide meaningful fiscal space for navigating these uncertainties.
As Saudi Arabia advances its transformational agenda, this borrowing strategy reveals a pragmatic approach to funding ambition while preserving fiscal stability – a delicate balance that global investors and policy analysts will monitor closely throughout 2025.
