Saudi Bonds: A Safe Haven in Emerging Markets

As global investors remain cautious about debt in emerging economies, Saudi Arabia is increasingly seen as a stable and attractive investment destination. This confidence stems from its strong financial foundation and ambitious economic transformation plans.

Karine Kheirallah, Head of Investment Strategy and Research for Europe, the Middle East, and Africa at State Street Global Advisors, one of the world’s largest asset managers, highlighted Saudi Arabia’s compelling macroeconomic story. She noted that while many countries struggle with high debt and rising servicing costs, Saudi Arabia maintains a relatively low debt-to-GDP ratio of 29.9% as of December 2024. Even with planned increases to support Vision 2030 investments, it is expected to remain well below global averages.

This fiscal discipline positions Saudi Arabia as a reliable sovereign bond issuer within emerging markets. Kheirallah expects the Kingdom to see steady economic growth in the coming years, led by structural reforms and non-oil sector investments. Though growth may not match the pace of some emerging markets, it is likely to outperform many advanced economies, making Saudi bonds appealing for investors seeking long-term value and stability.

In the first quarter of 2025, Saudi Arabia’s economy grew by 3.4% year-on-year, driven primarily by a 4.9% expansion in non-oil sectors, which contributed significantly to real GDP growth.

Vision 2030 plays a vital role in developing Saudi Arabia’s fixed-income market. Kheirallah explained that to finance major projects such as NEOM, both the government and the Public Investment Fund have expanded bond and sukuk issuances, including green financing. This has led to a more mature yield curve and improved price discovery across maturities.

The inclusion of Saudi dollar-denominated bonds in J.P. Morgan’s Emerging Markets Index in 2019 was a turning point, signaling global investor confidence. This move helped lay the groundwork for a more robust and sustainable debt market.

Saudi bonds also benefit from strong credit ratings. Moody’s upgraded Saudi Arabia to A1 in November 2024, and S&P raised its rating to A+ in March 2025. These reflect the country’s financial strength and effective reforms.

While public debt is rising, Kheirallah emphasized it remains manageable. However, sustaining fiscal health will depend on continued diversification and growing non-oil revenues. Maintaining high credit ratings, she stressed, will require ongoing financial discipline and successful reform implementation.

aawsat.com