Saudi Arabia has embarked on a fiscal transformation and spending program to restructure its economy away from oil dependence, which, during a period of low oil prices, has caused it to explore other avenues of financing, including selling government bonds and producing more oil than it has pledged.
Saudi Arabia sold US$5.5 billion of international bonds across two tranches in early September, with the Sukuk (Islamic debt) sale comprising a US$2.25-billion five-year note with a coupon rate of 4.25 per cent, and a US$3.25-billion 10-year bond with a rate of 4.875 per cent.
This positions the kingdom for a record year of issuances, driven by sustained spending on infrastructure and economic diversification projects.
The demand for Saudi debt proved robust, with investors placing approximately $17.5 billion in orders. This occurred even as Saudi Arabia increased its issuances to gain breathing room during a period of high spending and low oil prices.
Brent oil prices are down about 8 per cent this year to about US$69 a barrel, leading the Saudi government to forecast a fiscal shortfall of about 2.3 per cent of its gross domestic product, or about US$21 billion.
Saudi Arabia has sold nearly US$20 billion in debt so far this year, according to data from Bloomberg, already above the 2024 full-year total and just shy of the annual record of US$21.5 billion set in 2017.
However, Saudi’s debt-to-GDP ratio is still low relative to the rest of the world at below 30 per cent, though the International Monetary Fund predicts it will rise to 41 per cent by the end of the decade.
Saudi Arabia’s bond sales and sukuk have made it the second-largest issuer of dollar-denominated debt in 2025, behind only Mexico.
In addition to addressing fiscal pressures, Saudi Arabia’s initiatives are a strategic effort to attract a diverse range of investors.
Investment management firm State Street had a positive assessment of Saudi Arabia’s economic diversification through Vision 2030, a roadmap launched in 2016 that aimed to loosen the country’s oil dependence.
In an April white paper, State Street said: “With five years remaining in this program, the kingdom is already demonstrating meaningful progress in reshaping its economic structure.
“The initiative has sparked the development of several giga-projects focused on tourism, technology, and infrastructure, creating new employment and enhancing global connectivity.”
It pointed out that the results of diversification were increasingly evident across multiple dimensions, citing GDP growth in the non-oil sector of 4.3 per cent and non-oil exports surging 18 per cent year-over-year as of December 2024.
Reflecting on Saudi Arabia’s relatively modest debt-to-GDP ratio, State Street said it indicated a solid fiscal foundation and substantial capacity for future investments.
It added: “Even as Saudi advances its economic diversification agenda, its established position in global energy markets provides additional stability to its fiscal outlook and debt obligations.
“This underlying strength complements the kingdom’s expanding non-oil sectors, creating a balanced foundation for its ongoing economic transformation.”
Sustainable development features prominently in Saudi Arabia’s plans, with it expanding its financial instruments to include green financing.
State Street noted Saudi Electricity Company’s US$1.3-billion green Sukuk in September 2020, the Saudi Public Investment Fund’s inaugural US$3.5-billion green bond in October 2022, and the kingdom’s first-ever green government bond issuance of US$3.2 billion in March of this year.
State Street noted that this reflects the broadening and deepening of Saudi Arabia’s debt markets, as well as a diversification of financial instruments.
It added: “Overall issuance reached US$200 billion in 2024, growing fivefold from 2015, [before] the launch of Vision 2030.
“This growing issuance has enhanced liquidity, improved price discovery mechanisms, and led to a more robust yield curve across various maturities.”
JPMorgan explained that Saudi was the largest issuer of emerging market debt in the first five months of 2025, despite the market uncertainty caused by the Trump administration’s tariffs.
The bank said: “An uncertain macroeconomic environment around the world and higher borrowing costs were deterrents to new issue activity in emerging markets over the last three months.”
Reuters reported that Saudi Arabian companies – such as state oil company Aramco and the country’s sovereign wealth fund – also significantly utilised issuances, with Aramco raising US$5 billion in June through bonds and publishing a prospectus for future Islamic bonds.
This funding strategy is also being emulated by Gulf st Kuwait, which has forecast a US$8-billion debt issuance before the end of this year.
Despite its size, Kuwait is the fourth largest oil producer in the Middle East, and earlier this year it passed a law regulating public borrowing in preparation for its return to global debt markets after nearly a decade’s absence.
OPEC oil production increased in August following a production agreement among OPEC+ members, which includes OPEC and its partners, such as Russia. This rise was primarily driven by higher output from Saudi Arabia and the United Arab Emirates.
These two nations were also the drivers of an increase in July, with OPEC+ pumping nearly 28 million barrels of oil per day over the month, 360,000 barrels per day above the revised total for July.
Analysts, including those from the International Energy Agency, have asserted that the UAE, along with countries like Iraq, is producing significantly more oil than reported.
Notably, in June, Saudi Arabia joined the ranks of traditional OPEC+ production quota violators, including Kazakhstan, Iraq, and the UAE, despite its previously exemplary track record of adhering to its production commitments.
