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Saudi Aramco’s dividend payout to boost government surplus as GDP growth slows down

Lower oil prices took a hit on Saudi Aramco's second quarter results, as its profit fell to just over USD 30 billion

Saudi Arabia’s government surplus might reach 56 billion riyals (USD 15 billion) by 2023 end on the back of Saudi Aramco’s performance-linked dividend despite the cuts to oil production and lower prices impacting oil revenues, said Riyadh-based financial services company Al Rajhi Capital.

The Saudi government has forecast a budget surplus of SAR 16 billion in 2023, or 0.4% of GDP, with total revenues to reach SAR 1,130 billion. However, in its latest country assessment report, the IMF projected the Kingdom to pivot to a fiscal deficit of 1.2% of GDP in 2023, from a surplus of 2.5% in 2022.

Lower oil prices took a hit on Saudi Aramco’s second quarter results, as its profit fell to just over USD 30 billion. However, in August 2023, the Saudi oil giant announced an additional dividend of nearly USD 10 billion, most of which will go to the Kingdom’s government. The extra payout will be on top of its expected USD 153 billion base dividend for 2022 and 2023.

The Al Rajhi report said, “As per our assessment, the 2023 Government budget may see higher revenues despite the pledged output cut at the back of additional performance linked dividend announced by Saudi Aramco.”

“Oil revenues could reach SAR 749 billion, versus the earlier estimates of SAR 709 billion due to Saudi Aramco’s recent hike in performance-linked dividend,” it predicted further, as it estimated that the Saudi government’s total revenues will be aided by the performance-linked dividend “worth SAR 72 billion (attributed to Q2-2023 and Q3-2023 to be paid in this fiscal year) apart from the base dividend.”

The report further stated that the dividend amount may double in 2024 due to a higher horizon for the calculation of free cash flows, which will likely make the Saudi budget revenues relatively less sensitive to price volatility.

“Hence, the performance-linked dividend may offset the impact of lower revenues at the back of the output cut and the government may exceed its fiscal surplus target of SAR 16 billion for 2023,” the Riyadh-based brokerage and investment bank remarked, as it maintained its target for non-oil revenues at SAR 421 billion.

“We expect the non-oil revenues to grow slightly above last year supported by the traction in non-oil GDP growth,” it stated further.

The IMF recently projected the Kingdom’s overall economic growth in 2023 to slow sharply to 1.9%. The financial institution said oil GDP growth was set to decline by 2.5% this year while non-oil GDP growth was seen as strong at 4.9%.

In fact, Saudi Arabia’s economy grew 1.2% in the 2023 second quarter, government data showed, with non-oil growth vastly outperforming overall growth, which decelerated sharply from 2022 on the back of a decrease in oil activities.

Oil sector activities declined by 4.3% in the second quarter from the same period in 2022, data from the General Authority for Statistics showed, but non-oil activities surged 6.1%, driven by domestic demand.

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