Why US markets are betting on Saudi Arabia
While the world watched events unfold in Venezuela during the first week of January, Saudi Arabia quietly returned to the US debt capital markets, raising $11.5 billion of senior unsecured debt across four tranches.
Shortly thereafter, Saudi Arabia’s minister of finance approved the kingdom’s 2026 borrowing plan, projecting total financing needs of $57.9 billion. The proceeds are intended to fund a projected fiscal deficit of $44 billion, equivalent to 3.3 percent of Saudi Arabia’s gross domestic product (GDP).
This financing was highly successful, but as detailed in this report, the markets do not price Saudi Arabia as AA credit. In fact, Saudi Arabia trades at a discount to single A-rated sovereign debt, suggesting that the kingdom has work to do to build confidence in the country’s ambitious economic transformation plans, while showing the marketplace that this nation has the ability to generate accretive value generating returns.
Notably, while the Saudi Ministry of Finance constructed the 2026 budget on assumptions of slowing aggregate global demand for crude oil, the revenue outlook embedded in the projections implies a more constructive view on oil prices. As detailed in the table below, oil revenue, captured within “Other Revenue,” is budgeted at 64 percent of total revenue in 2026, unchanged from 2025. This suggests that hydrocarbons remain the dominant fiscal pillar, even as diversification accelerates.
By contrast, Goldman Sachs, in a December 2025 report titled “Saudi Arabia: FY2026 Budget Targets Significant Consolidation,” takes a more skeptical view of the kingdom’s fiscal outlook, driven largely by oil revenue assumptions. Goldman estimates a budget deficit of 6 percent of GDP, compared with the government’s projection of 3.3 percent, implying that Saudi Arabia may ultimately need to borrow additional capital to finance its growth ambitions.
Saudi Arabia’s widening fiscal deficit, alongside a growing current account deficit, reflects an economy firmly in investment-led growth mode. This is simply a function of a government that is spending more on expenditures than revenues, the definition of an expansionary fiscal policy. In addition, a widening current account deficit is by definition an economy investing more than it has in savings. Taken together, this showcases the government’s commitment to funding growth. Sustaining this trajectory will require continued access to both domestic and external financing markets. During the first week of January, the kingdom demonstrated precisely that access by issuing $11.5 billion of senior unsecured bonds, drawing reported demand in excess of $20 billion from global fixed-income investors, particularly for longer-duration tranches.
The transaction underscored Saudi Arabia’s strong market standing, supported by moderate debt levels, manageable debt-service ratios, and substantial foreign reserve buffers. In addition, Saudi Aramco’s partial public listing has created an additional channel through which the state can access and monetize future oil cash flows, enhancing fiscal flexibility alongside sovereign borrowing. Assuming borrowing remains aligned with economic growth and fiscal discipline, access to capital markets should remain durable.
The diversification of the Saudi economy over the past decade has been significant. Non-oil GDP has risen from approximately 56 percent of total GDP in 2016 to roughly 65 percent in 2026, according to data compiled by the Saudi General Authority for Statistics and International Monetary Fund estimates. Nonetheless, oil revenues remain the primary fiscal driver, and any assessment of Saudi Arabia’s budget outlook is incomplete without considering global energy market dynamics.
In its Global Energy Perspective 2025, McKinsey & Company notes that while fossil fuels are likely to retain a meaningful share of the global energy mix beyond 2050, demand is expected to plateau between 2030 and 2035.
Neal Shear, founder of Morgan Stanley’s commodities platform and former global head of sales and trading, observes that “it is hard to accurately predict peak global demand for energy.”
“However, it is much easier to come to a consensus that the secular trend line for fossil fuel demand is downward over the next decade,” he told me.
Shear further argues that today’s crude oil market is increasingly demand-driven rather than supply-driven, rendering global supply dynamics closer to a zero-sum game. Incremental barrels from countries such as Venezuela may displace production elsewhere, rather than expand overall consumption. Over time, absent commensurate supply discipline, a downward-shifting demand curve implies secular downward pressure on prices.
The year 2026 marks the tenth anniversary of Vision 2030, Saudi Arabia’s ambitious economic transformation strategy. The program’s core objective of diversification away from hydrocarbons into sectors such as petrochemicals, tourism and hospitality, mining, healthcare, manufacturing, retail, construction, and finance has materially reshaped the kingdom’s economic landscape over the last decade.
Looking ahead, policymakers could further strengthen market confidence in two key areas. First, financial markets and more broadly investors would welcome greater fiscal transparency, particularly a clearer breakdown of oil-related revenue assumptions and the treatment of Saudi Aramco dividends within the budget framework. As it stands, the Saudi budget does not delineate this dividend in full, so it is not readily transparent to investors how much of the budget is being driven by oil revenues. Second, as investment scales, there should be a stronger emphasis on capital efficiency and risk-adjusted returns. Transparency around outcomes, including those that underperform, would likely enhance, rather than diminish, investor confidence.
The chart below shows that Saudi sovereign bonds trade at wider spreads than those of AA-rated peers, consistent with the kingdom’s split credit ratings. More notable, however, is that spreads also exceed those of single-A sovereign benchmarks, suggesting that markets continue to apply a degree of caution beyond what headline ratings alone would imply. Part of this reflects technical factors, including index inclusion, but it also points to a broader question of confidence as Saudi Arabia advances its Vision 2030 agenda. As the scale of public investment rises, sustained fiscal transparency, clearer articulation of oil-revenue assumptions, and demonstrable capital efficiency will be critical in translating economic transformation into tighter sovereign risk premiums.
Source: Vaneck, JPM Indices (Saudi Arabia Sovereign Spread JPGCSASS Index, EMBIGD A Spread JPSSGDCA Index, EMBIGD AA Spread JPSSGDAA Index)
Markets do not demand perfection; they value clarity, discipline, and resilience. Saudi Arabia’s long-term strategy is coherent, ambitious, and increasingly credible. If executed with continued transparency and fiscal prudence, it has the potential not only to transform the kingdom but to reshape the broader region. The US debt capital markets, for now, appear to agree.
Khalid Azim is the director of the MENA Futures Lab at the Atlantic Council’s Rafik Hariri Center for the Middle East.
Further reading
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Image: FILE PHOTO: A large banner shows Saudi Vision for 2030 as a soldier stands guard before the arrival of Saudi King Salman at the inauguration of several energy projects in Ras Al Khair, Saudi Arabia, November 29, 2016. REUTERS/Zuhair Al-Traifi/File Photo
