Oman's lower borrowing plans 'won't alter creditworthiness'

Bank of America Merrill Lynch says Oman's plans to cut borrowing are positive but creditworthiness path remains unchanged
Oman's lower borrowing plans 'won't alter creditworthiness'
Oman, with an expected budget deficit of 9 percent of gross domestic product this year, has been slow to implement reforms following the crash in oil prices in 2014.
By Sam Bridge
Fri 22 Mar 2019 10:57 AM

Plans to finance Oman's fiscal deficit partly through non-debt creating flows are positive but they do not alter the country's creditworthiness, according to Bank of America Merrill Lynch.

Last month it was reported that Oman plans to slash its borrowing requirements for 2019 by as much as 70 percent and rely on asset sales to plug one of the largest budget deficits among oil exporters.

The Gulf Arab monarchy will likely raise up to $3 billion in bonds and loans, an unnamed senior official was quoted as saying by Bloomberg.

But BoAML's MENA Economist, Jean Michael Saliba, said in a new research note that the creditworthiness path of Oman remains unchanged in the absence of fiscal consolidation.

"While these developments appear to be of a one-off nature for now, they nonetheless suggest that authorities are aware that market access and terms were becoming more challenging at this juncture," he said.

Authorities intend to approach the market before early May.

The remainder of the funds would come from a number of sources including dividends and capital gains received from Oman Oil's stake sale of the Khazzan field, $1 billion from the ownership transfer of gas pipelines to Oman Gas and multilateral funding from tapping a $1.2 billion loan backed by the World Bank's Multilateral Investment Guarantee Agency.

Saliba noted: "We had estimated that, due to likely budgetary overruns, total sovereign external borrowing would need to stand at a large $5.3-9.3 billion for 2019, corresponding to an oil price range of $58-70 per barrel.

"As such, in a scenario where oil prices and fiscal discipline disappoint, authorities would still need to increase domestic or external borrowing to cover for the projected shortfall, even with current asset sales plans."

Oman, with an expected budget deficit of 9 percent of gross domestic product this year, has been slow to implement reforms following the crash in oil prices in 2014.

Since then, its debt as a share of economic output has risen 10 fold to 50 percent. Fitch Ratings downgraded the country’s debt to junk in December, fueling a sell-off in the nation’s bonds.

Moody’s Investors Service is the only rating company that has Oman at investment grade, though it’s just one level above junk.

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