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AlwaysFree: Saudi Arabia Might Face Budget Crunch After 2021 From Current Oil Prices

Author: SSESSMENTS

Moody’s Investors Service said that Saudi Arabia may not be able to rely on state oil company Aramco on almost $75 billion annual dividends beyond next year unless the price of crude oil increases. The government has given signs to depend on the dividend to cover its budget deficit. Saudi Arabia currently owned 98% of Aramco. Moody’s said in the report that this government move is most likely to be unable to repeat beyond 2021. The case is particularly when taking Aramco’s own capital expenditure commitments and needs to buy Saudi Basic Industries Corporation (Sabic), as the state company agreed to buy 70% of Sabic from the Public Investment’s Fund owned by the government. The promise was made earlier this year and agreed with the amount of $69 billion. 

During Aramco’s initial public offerings in 2019, the company pledged to pay out $75 billion to its shareholders during the first five years as a publicly traded company, and has reaffirmed its commitment. After that, the crude prices have fallen in the midst of the coronavirus global pandemic, and the average prices are 35% lower this year. Aramco also produces oil in less quantity under OPEC+ curbing deals with other global producers to stabilize the prices. 

As a way to honor the pledge, Aramco said to decrease spending. The world’s biggest oil company is also said to have laid off hundreds of workers and published plans to sell its non-core assets. Undeterred by these steps, the gearing ratio which compares company equity and capitals to funds, has risen from -5% at the end of March to 20% in June. The increase means that Aramco had more money than debt, and the percentage was shown above the initial targeted range between 5% to 15%. It has said that the number largely due to the debt the company took to acquire Sabic.

An overview of Saudi Arabia spending for the next three years was published by Saudi Arabia last week. The overview conceptualizes annual cuts to help the fiscal deficits, and based on around $50/barrel oil prices. Benchmark Brent crude was trading at around $43/barrel on Thursday, October 8.

Tags: AlwaysFree,Crude Oil,English,Middle East,Saudi Arabia

Published on October 12, 2020 5:19 AM (GMT+8)
Last Updated on October 12, 2020 5:19 AM (GMT+8)