Saudi Arabia's Debt Market Revolution: A Strategic Catalyst for Foreign Capital and Liquidity

Saudi Arabia's government debt market is undergoing a seismic shift, driven by strategic reforms under Crown Prince Mohammed bin Salman's Vision 2030. By expanding its Primary Dealers Program to include international financial institutions and introducing over-the-counter (OTC) settlement mechanisms, the Kingdom has unlocked a new era of liquidity and foreign capital inflows. For investors, this represents a compelling near-term opportunity in the emerging markets debt space, where structural reforms align with tangible market outcomes.

A New Era of Global Participation

In 2025, Saudi Arabia's National Debt Management Center (NDMC) elevated its Primary Dealers Program to include 15 institutions, blending local banks like Al Rajhi and Samba with global heavyweights such as Goldman Sachs, J.P. Morgan, and BNP Paribas. This expansion, which began in earnest in 2022 and accelerated in 2024, has transformed the Kingdom's debt market from a domestic-centric asset class into a globally accessible hub. International primary dealers now act as conduits for foreign investors, submitting subscription applications for government securities on a monthly basis.

The impact is immediate. In June 2025, the first full month of OTC settlement for sovereign riyal bonds, the traded value in Saudi's debt market surged to 5.2 billion riyals ($1.38 billion), a 21% increase from the pre-OTC average of 4.3 billion riyals. Over 80% of these trades involved foreign investors, signaling a structural shift in market dynamics.

Liquidity and Investor Confidence

The introduction of OTC settlement via the Edaa platform, managed by Saudi Tadawul Group, has been a game-changer. By enabling bilateral trading with Delivery versus Payment (DvP) mechanisms, the system reduces settlement risk and enhances transparency. This has attracted high-frequency traders and institutional investors, who contribute to tighter bid-ask spreads and higher turnover ratios.

The sukuk (Islamic bond) market, a cornerstone of Saudi's debt strategy, has also seen explosive growth. In July 2025 alone, the NDMC raised SR5.02 billion ($1.34 billion) through sukuk issuances—a 113.6% increase from June. The tranches, with maturities extending to 2039, reflect long-term investor confidence in the Kingdom's fiscal discipline.

Foreign capital inflows have further accelerated. According to Kamco Invest, net foreign investments in Gulf stock markets hit $4.2 billion in Q2 2025, with Saudi Arabia capturing $1.4 billion—up from $252.3 million in the previous quarter. This surge is attributed to the Kingdom's market liberalization efforts, including allowing GCC citizens to directly invest in Tadawul, and its inclusion in emerging market bond indices.

Strategic Positioning for Emerging Markets

Saudi Arabia's debt market is now a critical component of the broader emerging markets landscape. The riyal's peg to the U.S. dollar mitigates currency risk, while the Kingdom's fiscal strength—bolstered by Public Investment Fund (PIF) initiatives and a green bond framework—enhances its credit appeal. Foreign ownership of Saudi bonds, currently at 7.2%, remains underpenetrated compared to regional peers, offering ample room for growth.

For investors, the combination of structural reforms, liquidity improvements, and geopolitical stability makes Saudi Arabia's debt market a standout opportunity. The projected $500 billion in outstanding debt by 2025 underscores the scale of this transformation.

Investment Thesis and Actionable Steps

1. Diversification Play: Saudi sukuk and government bonds provide yield advantages (currently hovering around 4-5%) in a high-rate environment, with lower currency volatility than other emerging markets.
2. Liquidity Arbitrage: The OTC system's efficiency and foreign investor participation create a more competitive pricing environment, favoring active traders.
3. Long-Term Exposure: With Vision 2030 driving infrastructure and privatization projects, the demand for debt financing will remain robust, supporting market depth.

Investors should consider allocating to Saudi sukuk via primary dealers or regional ETFs that include the Kingdom's debt. Given the current foreign ownership levels and projected inflows, this market is poised for sustained growth in the near term.

Saudi Arabia's debt market is no longer a peripheral asset class. Through deliberate internationalization and regulatory innovation, it has emerged as a linchpin of the emerging markets debt universe. For investors seeking yield, liquidity, and strategic alignment with Vision 2030, the Kingdom's bond market offers a compelling, near-term proposition.