Proceeds from Saudi Aramco’s initial public offering (IPO) may help offset the impact of the government’s austerity measures, Fitch Ratings said.

The ratings agency expects that the IPO proceeds of near 90 to 96 billion Saudi riyals ($24 to $26 billion or 3 percent of GDP) to flow mainly towards domestic investments through the state’s sovereign wealth fund. This would support the kingdom’s non-oil growth, despite the risk of shifting private sector capital towards the IPO at the expense of other local investments.

“PIF's (Public Investment Fund) capacity to invest is also being augmented by the sale of a 70 percent stake in Saudi Basic Industries Corporation (SABIC) to Saudi Aramco for $69 billion agreed in March, PIF debt issuance and dividends from its listed domestic equity holdings. This could mitigate the impact from renewed central government austerity,” Fitch Ratings said.

The Saudi pre-budget statement by the Finance Ministry in October showed a renewed focus on spending discipline, with a plan to trim intention to refocus on budget discipline,  with expenditure expected to decrease marginally to 1.02 trillion riyals in 2020 from an estimated 1.048 trillion in 2019. Read more here

“This would be negative for economic activity, although we think the government may struggle to achieve the envisaged cuts,” Fitch Ratings said.

(Writing by Nada Al Rifai nada.rifai@refintiv.com , editing by Seban Scaria)

Our Standards: The Thomson Reuters Trust Principles

Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.

© ZAWYA 2019