Saudi Aramco's dividend payout will boost government surplus further

Saudi Arabia's government surplus might reach 56 billion riyals ($15 billion) this year on the back of Saudi Aramco's performance-linked dividend despite the cuts to oil production and lower prices impacting oil revenues, said Al Rajhi Capital in a note.

The government has forecast a budget surplus of SAR 16 billion this year, or 0.4% of GDP, with total revenues to reach SAR 1,130 billion. However, in its country assessment report on Wednesday, 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 the company resulting in its Q2 profit falling to just over $30 billion. However, in August, the state oil giant announced an additional dividend of nearly $10 billion, most of which will go to the Saudi government. The extra pay out will be on top of its expected $153 billion base dividend for 2022 and 2023.

Al Rajhi 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 Aramco."

Oil revenues could reach SAR 749 billion, versus the earlier estimates of SAR 709 billion due to Aramco’s recent hike in performance-linked dividend, it said.  

Furthermore, the 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", it noted.

The report said that the amount of dividends may double next year due to a higher horizon for calculation of free cash flows. This shall make the Saudi budget revenues relatively less sensitive to price. 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 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."

The IMF in its most recent report projected the kingdom's overall economic growth in 2023 to slow sharply to 1.9%. The financial institution said oil GDP growth is set to decline by 2.5% this year while non-oil GDP growth is seen strong at 4.9%.




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