Aramco’s recent decision to cut dividends by 31.0% in 2025 is expected to cause the Kingdom’s budget deficit to widen to 3.8% of GDP in 2025, up from 2.8% in 2024, Fitch Ratings said in a research note.

REFRESHER- Aramco plans to reduce its 2025 dividend payouts to USD 85.4 bn, which it attributed to financial pressure from high payouts and subdued oil prices, which have strained its balance sheet and contributed to its net-debt position. The dividend will include a base payment and a smaller performance-linked portion.

For Fitch Ratings, the change in dividend payments is no surprise: Aramco’s plan for dividend payments is aligned with the agency’s view that total dividend payments will average around USD 82 bn annually over 2025-2028, the note reads.

Fitch’s deficit forecast is a more conservative estimate than that of Capital Economics, which penciled in a prediction of the deficit widening to 4.0% of GDP in 2025. Meanwhile, Emirates NBD said in February that it sees Saudi Arabia recording a budget deficit of 5.6% of GDP this year.

The latest gov’t projections tell a different story: The government expects the budget shortfall to come in at 2.3% of GDP (SAR 101 bn) in the current fiscal year, and to “continue at similar levels over the medium term,” it said in its budget for FY 2025.

To meet diversification targets, some gov’t adaptation will be necessary: “We believe the authorities retain flexibility to adjust expenditure, particularly on investment, as they look to balance capital spending priorities and fiscal targets,” Fitch said. However, this could lead to lower investment spending, which could have an impact on the Kingdom’s diversification efforts as investment projects are scaled back.

How increased oil production will impact GDP growth: The agency sees oil production rising by around 10% by the end of 2026 to around 10 mn bpd, contributing to an “expansion in oil sector GDP of 2.7% in 2025 and 6.4% in 2026” — and, ultimately, causing economic growth to accelerate to 3.4% in 2025 and 4.6% in 2026, from 1.3% in 2024.

Fitch’s prediction for GDP growth is more optimistic than most: S&P Global sees Saudi Arabia’s GDP growing by 2.8% in 2025, while the IMF and the World Bank slashed the Kingdom’s 2025 growth projections to 3.2% and 3.4% respectively, citing extended Opec+ production cuts. Meanwhile, Capital Economics penciled in an even more optimistic prediction of 3.5%, citing anticipated oil output cuts, “but activity in the non-oil sector is likely to soften on the back of a turn to fiscal consolidation.”

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