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Fri 12 Jun 2020 10:09 AM

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Oman weighs seeking financial aid from Gulf countries

Sultanate's debt is rated junk by three major credit assessors

Oman weighs seeking financial aid from Gulf countries

Oman has  been in preliminary talks with local and international banks to raise as much as $1bn in loans in the first half of this year.

Oman has discussed the possibility of financial aid with other Gulf states to help it cope with the economic impact of the coronavirus pandemic and low oil prices, according to two officials in the region and a US Government official familiar with the contacts.

The topic was one of several discussed at recent high-level political meetings between Gulf officials, two of the people said. The discussions are preliminary and nothing has been decided, including the scope or type of support that could be on the table, they said, declining to be named because of the sensitive nature of the conversations.

The talks took place at the leadership and foreign ministry level, the people said.

An Omani foreign ministry official said the country is engaged with Gulf neighbours to discuss ways to back up its national programme to mitigate the impacts of the drop in oil prices and the coronavirus outbreak, asking not to be named because the discussions haven’t been made public.

Oil Exports

The biggest Arab oil exporter outside OPEC, Oman was among the most vulnerable economies in the six-nation Gulf Cooperation Council (GCC) even before the dual crisis, posing a major challenge for Sultan Haitham Bin Tariq Al Said after he took power in January. The nation’s debt is rated junk by the three major credit assessors.

The yield on Oman’s $2.5 billion bond due 2026 fell 28 basis points to 6.1 percent at 1:33pm in London after the news on Thursday, the lowest since March 6.

The sultanate’s long-standing role as a mediator on regional and international issues, including with Iran, and its geographical position on one of the world’s busiest shipping lanes, make its stability important to Gulf states and international allies like the US, which signed a deal for better access to the sultanate’s ports last year.

Economist Ziad Daoud said: “Oman is one of the most vulnerable economies in the GCC to the drop in oil prices. Its debt is among the highest, deficit among the widest and reserves among the lowest.

“Explicit support from its neighbours will help re-assure investors. The size of the package will matter - Oman’s financial needs are significantly larger than Bahrain, the other GCC country receiving assistance.”

Oman last week combined its two wealth funds - the State General Reserve Fund and the Oman Investment Fund - into one entity. Abdulsalam Al Murshidi was appointed to head the $17bn Oman Investment Authority.

State news agency ONA reported Sultan Haitham met last month with the foreign and finance ministers of Qatar, which is being boycotted by a four-nation Arab bloc led by Saudi Arabia. The talks followed a series of meetings and phone calls between Oman, Kuwait and Qatar.

US Support

Other Gulf countries recognise that Oman is in more difficult straits, the US Government official said, and are unanimous in not wanting to see the country sink economically.

The US has also discussed potential ways in which it could support Oman, including under its 2009 Free Trade Agreement with the sultanate, and opportunities for US companies, the official said.

Soon after coming to power, Sultan Haitham said fiscal stability was a priority. He has set out plans to cut spending to stabilize public finances, review state companies and last month made a rare decision to reduce salaries of new state employees. As elsewhere in the GCC, Oman has announced plans to inject liquidity into its banking system.

The country is looking at a seventh straight year of fiscal deficits. The gap is expected to widen to 16.9 percent of gross domestic product this year, according to a forecast by the International Monetary Fund. Oman has also been in preliminary talks with local and international banks to raise as much as $1bn in loans in the first half of this year, Bloomberg reported in March.

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