(Bloomberg) — Aramco (2222.SR) plans to trim the world’s biggest dividend, lowering a key source of funds for Saudi Arabia’s budget while relieving stress on its own finances.

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Saudi Aramco expects the total payout to be about $85 billion in 2025, compared with $124 billion last year, it said in a statement Tuesday. The lower distribution, in line with previously announced policy, has been in focus for investors and economists alike as the payout has become a crucial component of the kingdom’s budget amid a multitrillion-dollar plan to transform the economy.

The decision represents a crucial choice for the Saudis — risk increasing stress on Aramco’s balance sheet or let the kingdom’s budget deficit widen. The company had flipped into a net-debt position recently, a sharp turnaround from the over $27 billion in net cash a year ago. Last year, the total dividend was almost $40 billion higher than free cash flow — the money left over from operations after accounting for investments and expenses.

Aramco’s shares fell as much as 2.4% to the lowest intraday level since October. The company’s stock has lagged behind the so-called oil supermajors that includes Exxon Mobil Corp. (XOM) and Shell Plc. (SHEL).

The dividend is made up of two parts: a base payment and a performance-linked portion. Aramco had been signaling that the special component would be paid as a portion of free cash flow from 2025, after covering the base dividend and any investments. Aramco on Tuesday confirmed it would stick to that policy.

The company also said the base payout will be $21.1 billion for the fourth quarter, a 4.2% increase from a year earlier. At this rate, almost the entire dividend for 2025 would be made up of the base component. The special component, which the company had said would be $10.8 billion for each of the six quarters ending in 2024, will be largely eliminated and lowered to $200 million in the first quarter.

Also read: Aramco’s $124 Billion Payout in Focus for Wobbling Saudi Budget

Weaker Earnings

The focus on the dividend comes as Aramco reports weaker earnings due to subdued oil prices and production near the lowest level in more than three years. Weak prospects for global economic growth and softer demand have pushed crude prices in London to the lowest level in almost three months. Brent is averaging less that $77 a barrel this year, far below the more than $90 Saudi Arabia needs to balance its budget.

Aramco’s net income for 2024 was 393.89 billion riyals ($105 billion), narrowly missing analyst estimates compiled by Bloomberg. Free cash flow of about $85 billion was below the total dividend payout.

Riyadh is already forecasting a deficit of about $27 billion for 2025 with state income expected to fall short of expenses for the next several years. Debt sales of about $50 billion by state and government entities last year, along with Aramco’s payouts, helped close the deficit gap. The government has also sold more than $14 billion of bonds this year, making it the biggest borrower in emerging markets.

Aramco also plans to sell more debt after $9 billion in dollar and Islamic bonds last year, Chief Financial Officer Ziad Al-Murshed said in an interview in November.

(Updates with oil prices in the sixth paragraph.)

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