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Mon 22 Jul 2019 02:00 PM

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Oman's latest budget update reveals deficit narrowing

Downgraded by all three major rating companies, the sultanate has stopped providing data on its budget performance

Oman's latest budget update reveals deficit narrowing
In a region where investors have already expressed concern about the lack of economic statistics, Oman’s delay risked testing the market’s nerves.

Downgraded by all three major rating companies and facing speculation whether a bailout might be needed, the sultanate stopped providing data on its budget performance this year - until Thursday.

A monthly bulletin published by the central bank a week ago, which includes a breakdown of government revenue and expenditure, only covers a period through November 2018.

But in a report dated July 18, the National Centre for Statistics and Information said the deficit narrowed in the first five months of the year to 358.4 million rials ($931 million), down from 1.1 billion rials a year earlier.

The Ministry of Finance said on Twitter on Monday “the data is publicly available and regularly published” through the statistics office.

Desperate for returns, the market hasn’t been obsessing over the data void. The country’s dollar bonds have returned about 13% so far this year, the most among all six sovereigns in the Gulf, according to Bloomberg Barclays indexes.

In a region where investors have already expressed concern about the lack of economic statistics, Oman’s delay risked testing the market’s nerves. Its budget has been slow to heal after the oil rout five years ago, as the government lagged behind on fiscal reforms and ran an average deficit of 17% in 2015-2017.

Although a rebound in crude prices brought some relief, S&P Global Ratings estimates last year’s shortfall at 8.9% of gross domestic product, more than a percentage point higher than it initially projected, a result of spending increases and underperformance in non-hydrocarbon revenue.

The International Monetary Fund sees the shortfall narrowing over the next several years before it begins to climb back up from 2022, according to a July report. Oman’s state budget plan envisaged a deficit of 9% for this year, or 2.8 billion rials, slightly more than last year’s actual deficit of 2.65 billion rials.

Budget revenue in January-May 2019 rose more than 15% from a year earlier, while spending dropped 4.3%, according to the statistics service.

Oman needed to come clean as it’s planning its first sale of Eurobonds this year. Yields on Oman’s bonds due 2028 remain higher than lower-rated Bahrain’s, which rallied last year after the nation won a $10 billion bailout package.

Oman, which S&P estimates relies on hydrocarbons for 70% of its fiscal receipts, has started to make some headway, imposing an excise tax that could generate close to 100 million rials in annual revenue.

But even as the sultanate succeeded last year in bringing down its current-account deficit by over 10 percentage points of GDP, its government debt continued to increase, according to the IMF, which also cut its estimate for Oman’s economic growth in 2019 to near zero.

“I think Oman has to show progress in fiscal consolidation and sustainability,” said Abdul Kadir Hussain, head of fixed-income asset management at Arqaam Capital. “If they are not able to show that, they risk the market losing confidence.”