Saudi Arabia’s debt market is seeing growing activity as the government, banks and companies tap international markets simultaneously, highlighting their widening use of debt instruments to diversify funding sources. The kingdom is seeking to finance budget needs and investment projects, while Saudi banks and companies are moving to strengthen their capital bases and diversify funding channels. The latest move came from the Saudi government, which raised $3.25 billion through a two-tranche offering of US dollar-denominated Islamic bonds, or sukuk. Al Rajhi Bank has also begun offering Tier 2 sukuk for an amount yet to be determined. Arab National Bank, meanwhile, said it had completed a $750 million Additional Tier 1 sukuk offering with an annual yield of 6.5%. In the corporate sector, Saudi Arabian Mining Co., known as Ma’aden, raised $1 billion through its first international term loan and revolving credit facility. The simultaneous transactions illustrate the growing importance of the debt market as an alternative to traditional financing, with Saudi issuers benefiting from international demand for dollar-denominated debt despite persistently high global borrowing costs, said Abdullah Al-Mair, assistant professor of economics at King Fahd University of Petroleum and Minerals. The International Monetary Fund expects Saudi public debt to reach 32.6% of gross domestic product this year, up from 29.8% in 2025, a level that remains low by global standards. The Finance Ministry forecasts the ratio at 33.9%, according to the kingdom’s 2026 budget statement. The IMF had raised its growth forecasts for the Saudi economy for this year and next, citing its resilience in the face of global challenges, an expected improvement in oil revenue and accelerating growth in non-oil activities that have come to drive the country’s economic transformation. Strong demand for Saudi debt The latest sovereign issuance stands out as an indicator of investor appetite for Saudi debt instruments. Orders exceeded $16.5 billion, according to the National Debt Management Center, more than four times the $3.25 billion issue size. The deal comprised a $1.25 billion five-year tranche and a $2 billion 10-year tranche. The final spreads were set at 70 basis points over US Treasury yields for the first tranche and 80 basis points for the second. Al-Mair said the strength of demand reflected “a high level of confidence among international investors in the kingdom’s creditworthiness and its ability to meet its financial obligations.” Orders exceeding four times the issue size “indicate that Saudi Arabia continues to enjoy strong access to global debt markets,” even amid high interest rates and geopolitical tensions, he said. The kingdom’s ability to price the sukuk at relatively narrow spreads over US Treasury yields “reflects investors’ positive view of Saudi sovereign risk compared with many other emerging markets,” he added. From government to banks and companies Debt-market activity is not limited to government financing. Saudi banks are also turning to international markets to issue instruments that bolster their capital bases and provide additional sources of funding. Arab National Bank said it had completed a $750 million Additional Tier 1 capital sukuk offering with an annual yield of 6.5%. The perpetual sukuk are callable after five years. Al Rajhi Bank, meanwhile, has begun offering US dollar-denominated social Tier 2 sukuk with a maturity of 10-1/2 years and an option to redeem them after 5-1/4 years. The final size and pricing terms will be determined according to market conditions. At the same time, Saudi companies are turning to international financing markets. Ma’aden raised $1 billion through its first international term loan and revolving credit facility in a move aimed at supporting its general needs and diversifying its funding sources. The concurrent transactions indicate that the debt market is no longer merely a tool for financing the government deficit, but has become a broader channel for meeting the funding needs of financial institutions and companies, allowing them to reach a wider investor base and manage maturities and liquidity sources. Borrowing rises, but debt costs pose a challenge The moves come as part of Saudi Arabia’s 2026 borrowing plan, which aims to raise about $57.9 billion. Of that, about $44 billion will finance an expected budget deficit, while roughly $13.9 billion will be used to repay debt maturing during the year. Al-Mair said continued borrowing would “naturally lead to an increase in public debt,” but noted that Saudi Arabia’s debt-to-GDP ratio did not exceed 33%, a level that, in his view, “remains manageable compared with many major economies.” Continued government efforts to diversify revenue and manage maturities provide support for debt sustainability, he said, while debt-servicing costs represent the main challenge in the next phase. “With global bond yields and interest rates remaining relatively high, new issuance and debt refinancing are becoming more expensive than in the years when interest rates were low,” Al-Mair said, warning that interest payments in the budget could rise in the coming years. Can debt become a driver of growth? Higher debt does not necessarily create fiscal pressure if it is used to finance investments capable of supporting growth and generating future revenue. Al-Mair said the kingdom was directing part of its borrowing toward tourism, infrastructure and industrial projects, which could “increase non-oil revenue” and support the economy’s ability to absorb higher debt levels. For Saudi Arabia, the issue therefore appears to be less about the volume of borrowing alone than about how it is managed, its cost and the economic return generated by its use. While the government continues to finance budget needs and projects through debt markets, banks and companies are using the same channel to strengthen their capital and diversify funding sources. Al-Mair said demand for Saudi debt instruments at this time underscored their continued appeal to international investors, adding that “public debt is an important component in diversifying financing methods and has a clear impact on economic development.” As the range of Saudi borrowers in international markets expands, continued demand for their debt instruments and issuers’ ability to maintain competitive funding costs will be key to determining how effectively the debt market can support the investment and spending phase associated with the kingdom’s economic transformation.
