Saudi Arabia's Non-Oil Shift Bolsters Economy as Digital Sector Expands
Saudi Arabia's push to diversify its economy away from oil is gaining momentum, according to a report by S&P Global Ratings. The kingdom's efforts to broaden its revenue base and expand its digital sector are enhancing long-term economic resilience. However, funding this transformation will require significant resources, potentially exceeding what domestic banks can provide alone. Saudi lenders are expected to rely more on structured finance and attract capital from both local and international sources to support economic growth.
S&P highlights that the success of this transition depends on prudent capital allocation and the development of new funding avenues. In the first half of 2026, Saudi Arabia recorded a budget deficit of 160 billion riyals ($42.7 billion), a 71% increase from the same period in 2025. The agency projects the budget gap will remain at 5.8% of GDP in 2026, unchanged from 2025, before shrinking to an average of 3.4% from 2027 to 2029.
The digital economy is becoming a key driver of Saudi Arabia's diversification strategy. The kingdom is leveraging its strategic location between Asia, Africa, and Europe, along with expanding communications networks, to position itself as a regional data center hub. However, S&P warns that the concentration of cable routes along the Red Sea and Arabian Gulf exposes the kingdom to service disruptions, emphasizing the need for network diversification.
Demand for domestic data-center infrastructure is growing due to data residency mandates, government digitalization, and corporate migration to cloud computing. S&P estimates operational IT capacity in Saudi Arabia at 222 megawatts in Q1 2025, with projections of 29% annual growth through 2030. The kingdom aims to achieve 1 gigawatt of active data-center capacity by 2030, requiring $7 billion to $9 billion in project capital and $3.5 billion to $7 billion in debt. A more aggressive scenario could see capacity reach 2.5 to 3 gigawatts, with funding needs rising to $28 billion to $42 billion.
Saudi banks are exploring alternative funding sources to support loan expansion. Deposits from the government and related entities accounted for 33% of total system deposits in June 2026, up from 20% at the end of 2018. The banking sector's loan-to-deposit ratio reached 104% by June 2026, prompting banks to issue senior unsecured bonds, subordinated debt, and Additional Tier 1 instruments. Private credit is also emerging as a potential funding avenue, with its significance expected to grow as investors seek opportunities in the expanding market.