Saudi Arabia's deficit focus to date has revolved around Aramco's generous dividend payouts and intensive belt tightening of its own. Image Credit: Reuters

Riyadh: Saudi Arabia may not be able to rely on annual dividends of almost $75 billion from state oil company Saudi Aramco beyond next year unless crude prices increase, according to Moody's. The government, which owns 98 per cent of Aramco, has depended on the dividend to help plug its budget deficit.

"The government is unlikely to be able to repeat the maneuver beyond 2021," Moody's said in a report. This is the case "particularly when taking into account Saudi Aramco's own capital expenditure needs and its commitment" to buying Saudi Basic Industries Corp.

Aramco agreed earlier this year to buy 70 per cent of the chemicals maker from the government's Public Investment Fund for $69 billion. Aramco pledged during its 2019 initial public offering to pay out $75 billion to shareholders during its first five years as a publicly traded company. It has since reaffirmed that commitment.

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No respite on oil

Yet, crude prices have fallen amid the coronavirus pandemic and are 35 per cent lower this year. Aramco, meanwhile is pumping and selling less oil under a deal among global producers to reduce supply.

To honor its dividend pledge, the world's biggest exporter has said it would decrease spending and has laid off hundreds of workers and announced plans to sell off non-core assets.

Despite taking these steps, the company's gearing ratio has risen, from -5 per cent at the end of March - meaning Aramco had more cash than debt - to 20 per cent in June, above its targeted range of 5-15 per cent. That's largely due to the debt it took on to acquire Sabic.

Saudi Arabia last week published an overview of its spending plans for the next three years that envisages annual cuts to help contain its budget deficit. The plans were based on oil prices of around $50 a barrel, according to a Goldman Sachs Group Inc. analysis. Benchmark Brent crude was trading Thursday at around $43 a barrel.