Saudi Arabia’s Vision 2030 faces its credit ceiling as foreign funding rises – Moody’s

According to a series of sectoral reviews published by Moody’s Investors Service this week, the country’s push to diversify away from hydrocarbons is colliding with mounting borrowing needs across state-linked firms, commercial banks and private sector participants. Together, they are stretching the financial system beyond its traditional funding base, the reports found.

Credit growth outpaces deposits

The strain is clearest in the banking sector. Credit demand, driven by Vision 2030 megaprojects and a still-expanding mortgage market, has been averaging 12-14 per cent a year for five consecutive years, while deposit growth has remained in the 6-9 per cent range, Moody’s said in its “Banks – Saudi Arabia: Reliance on Alternative Funding Persists as Credit Demand Remains Strong” report. The system’s loan-to-deposit ratio exceeded 100 per cent in 2021 for the first time, marking a symbolic threshold in a country long associated with excess liquidity.

To close the gap, lenders have turned to capital markets and foreign funding. In 2024, Saudi banks issued SAR 56 billion ($15 billion) in bonds and hybrid instruments – more than double the SAR 21 billion raised in 2023, as they competed to finance infrastructure, real estate and state-linked lending. Foreign funding has risen from 6 per cent of total liabilities in 2020 to 11 per cent by June 2025, and the system’s net foreign asset position turned negative in July 2024 for the first time on record, Moody’s said.

While these shifts deepen the kingdom’s integration into global markets, they also heighten refinancing and currency risks. Moody’s warned that market funding offers flexibility but increases exposure to investor confidence, noting that a loss of sentiment could complicate renewals if global conditions tighten. To pre-empt potential strains, the Saudi Central Bank (SAMA) introduced a 100-basis-point counter-cyclical capital buffer in May 2025, effective in 2026, to moderate loan growth and bolster resilience.

The PIF effect

At the centre of this funding web is the Public Investment Fund (PIF), the government’s $900-billion sovereign wealth fund. PIF has become the largest single driver of investment and borrowing in the Vision 2030 ecosystem, financing everything from the NEOM megacity to Riyadh Air and the Red Sea tourism project.

According to Moody’s ‘Emerging Markets – Saudi Arabia: FAQ on Vision 2030, Diversification Progress and Funding Challenges‘, PIF’s total debt has increased by about SAR 113 billion since 2020, reaching SAR 154 billion at end-2024, even as it generated more than SAR 250 billion in internal cash flow during the same period. Moody’s estimates that investment from PIF alone will reach around SAR 1 trillion between 2025 and 2030, funded through asset transfers from Aramco, loans, debt issuance, and co-investment ventures with global partners such as Alphabet and Baoshan Steel.

That wave of investment has propelled non-oil growth and created overlapping exposures across public and private balance sheets. Among rated non-financial corporates, capital spending rose more than 130 per cent to SAR 94 billion in the 12 months to June 2025 compared with 2020, while gross debt increased by around 18 per cent to SAR 444 billion over the same period. Separately, capital expenditure by government-related issuers (GRIs) totalled more than SAR 93 billion in the 12 months to June 2025, up from SAR 40 billion in 2020, according to Moody’s ‘Nonfinancial Companies – Saudi Arabia: Diversification Investment to Drive Growth Across Sectors but Borrowing Pressures Mount‘.

The result is an economy expanding on the back of rising leverage, underpinned by strong state support but increasingly reliant on market-based finance. Moody’s said that while most Saudi corporates maintain healthy credit metrics, the rapid expansion of market-based funding increases refinancing risks.

Funding the future – or borrowing from it

As domestic liquidity tightens, Vision 2030’s financing model is shifting from direct state spending to a mix of sovereign wealth investment, bank lending, capital-market issuance and foreign capital. Yet this transition introduces new vulnerabilities, Moody’s said.

The PIF remains central to financing Vision 2030, catalysing co-investment and market-based funding across sectors, but the concentration of activity within its ecosystem increases interconnectedness between state-linked borrowers and lenders. Meanwhile, foreign-currency issuance and cross-border borrowing have made both banks and corporates more sensitive to global interest-rate cycles. A prolonged period of higher US rates could erode funding appetite or raise refinancing costs for both banks and state-linked entities.

Still, Riyadh shows little sign of easing off. Moody’s notes that non-oil GDP rose 4.6 per cent year-on-year in the 12 months to the first quarter of 2025, underscoring strong momentum outside hydrocarbons. Upcoming events such as the 2027 AFC Asian Cup, the 2030 World Expo and the 2034 FIFA World Cup are expected to further boost construction, tourism and services.

To sustain that momentum, policymakers face a delicate balancing act between fuelling investment and maintaining fiscal discipline. Government debt, Government debt, currently about 26 per cent of GDP, is projected by Moody’s to exceed 36 per cent by 2030 as moderate deficits persist under softer oil prices.

Moody’s expects the diversification push to continue, supported by fiscal discipline and selective reprioritisation of projects. Yet the reports collectively underscore a turning point: Saudi Arabia’s transformation may no longer hinge on the price of oil, but on the availability – and cost – of credit.