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Aramco's $75 billion dividends will not balance Saudi Arabia's deficit

  • In the midst of a global pandemic, and intensely tumultuous oil prices, Saudi Arabia may not be able to rely on its annual dividends from Aramco (under 98 percent Saudi ownership) of almost $75 billion, unless crude oil prices stabilise in the coming months.
09 Oct 2020

RIYADH: In the midst of a global pandemic, and intensely tumultuous oil prices, Saudi Arabia may not be able to rely on its annual dividends from Aramco (under 98 percent Saudi ownership) of almost $75 billion, unless crude oil prices stabilise in the coming months.

According to a report by Moody’s, a notable credit ratings agency, “The government is unlikely to be able to repeat the manoeuvre beyond 2021”, anticipating that greater economic diversification would be required to balance the impact of a global oil price fluctuation.

Crude oil prices have dropped considerably in the aftermath of the COVID-19 pandemic, approximately 35 percent in this year alone, and Aramco has stated that it would decrease spending - having laid off hundreds of workers and announcing plans to sell off non-core assets.

Despite taking these measures, the company’s gearing ratio - which is the proportionate measure of a company’s equity and its debt - from 5 percent at the end of March, to 20 percent in June, which is above its targeted range (5 to 15 percent), but that is largely due to the debt it took on to acquire Sabic.

Last week, Saudi Arabia published a comprehensive overview of its spending plans for the next three years, which envisages annual cuts to help contain its budget deficit - but any reasonable estimate of the global oil market shows that the reverberations of a global pandemic would continue to linger.