Saudi Aramco’s dividend reduction likely to widen country’s budget deficit: Fitch

Saudi Aramco announced a significant cut to its performance-related dividend for the first quarter of 2025, a move in line with Fitch Ratings' projections and expected to widen the country’s budget deficit.

The oil giant said March 4 that the performance dividend would decrease to $200 million, down sharply from $10.8 billion in the first quarter of 2024. However, the base dividend rose by 4.2% to $21.1 billion.

Aramco expects total dividend payments for 2025 to reach $85.4 billion, equivalent to about 7.7% of the nation’s GDP, as estimated by Fitch. Approximately 82% of this amount is earmarked for the government’s budget, with another 16% directed to the Public Investment Fund (PIF).

Fitch previously forecasted in January that the budget deficit would expand to 3.8% of GDP in 2025, influenced by reduced Aramco performance dividends and lower oil prices estimated at $70 per barrel. The government has adjusted its own projections, revising the 2025 deficit from 1.6% to 2.3% of GDP.

Despite these challenges, Fitch notes Saudi Arabia's flexibility in managing expenditures, particularly investment-related spending, to balance fiscal priorities. This adaptability may mitigate the impact of lower oil prices on public finances but could slow progress in diversifying the economy away from oil.

Saudi oil production is expected to grow by 10% by the end of 2026, boosting oil sector GDP by 2.7% in 2025 and 6.4% in 2026, following OPEC+ agreements to unwind voluntary output cuts. This could support overall economic growth, which Fitch projects to accelerate to 3.4% in 2025 and 4.6% in 2026.

Saudi Arabia’s credit profile remains strong, with large sovereign net foreign assets and fiscal buffers. Fitch estimates government debt to GDP will rise from 29.7% in 2024 to 35.3% in 2026, still well below the peer median of 55.1%. While borrowing by government-related entities such as the PIF increases contingent liabilities, Fitch notes these are outweighed by their significant assets.