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Oman successful in raising loans of $2.2 billion, as the country’s economy bounces back

Oman has recently raised $2.2 billion with a loan, more than double the amount it had initially sought, as the country's economic prospects improve

Oman expects a 2021 budget deficit of 2.24 bn Omani Rials ($5.82 bn) EMEA emerging markets (EM) sovereign commercial debt issuance will remain elevated at $571 bn Overall, Oman's fiscal deficit rose by 10.6% to 17.3% of GDP

Oman has recently raised $2.2 billion with a loan, more than double the amount it had initially sought, in a deal that attracted interest from a large group of regional and international lenders, four sources said, according to Yahoo Finance.

Oman had been in talks for a loan of at least $1 billion, sources told Reuters in November. In January, sources said it was looking to raise a $1.1 bn loan.

Oman’s bonds jumped after Reuters reported the completion of the deal. Its bonds, due in 2048, gained 1 cent to trade at 99.1 cents on the dollar, Refinitiv’s Tradeweb data showed. 

Oman expects a 2021 budget deficit of 2.24 bn Omani Rials ($5.82 bn). To make up the shortfall, the government aims to raise about 1.6 bn Rials ($4.16 bn) through borrowing and draw 600 million Rials ($1.56 bn) from its reserves.

It was the first Gulf government to tap the international bond markets this year, raising $3.25 bn in three-part bonds in January.

The new loan has a 15-month maturity with the possibility to extend it by an additional 12 months at the borrower’s discretion, sources said.

Oman’s external debt maturing this and next year will amount to $10.7 bn, or about 7.5% of GDP, S&P Global Ratings has said. 

Read: Big changes are coming to Oman in 2021, aimed at fixing economy, employment

Read: GCC VAT revenues, VAT dates for Kuwait, Qatar, and Oman, plus COVID-19 VAT impact

S&P on emerging markets’ sovereign debt

S&P Global Ratings view that EMEA emerging markets (EM) sovereign commercial debt issuance will remain elevated during 2021, albeit down by just over $100 bn to $571 bn. 

This follows last year’s nearly 50% ($120 bn) increase in gross EMEA EM sovereign commercial issuance, to $672 bn, as governments boosted fiscal support for firms and households affected by the global health emergency COVID-19.

Slightly over half of the sovereigns’ gross borrowing in 2021 will be to refinance maturing long-term debt, resulting in an estimated net borrowing requirement of $273 bn, compared to last year’s $395 bn historical high.

It said EMEA EM sovereigns’ commercial debt will reach an equivalent of $3.2 trillion by end-2021, a year-on-year increase of $288 bn. 

Their commercial debt is therefore poised to account for 40.7% of combined GDP, up sharply from 30.7% in 2016. 

Saudi Arabia has already raised $5 billion this year and reportedly hired banks in preparation for a euro-denominated bond sale.

“Governments in the Gulf are still likely to favor international bond issuance over other forms of financing for the time being,” according to James Swanston, a MENA economist at Capital Economics.

He said that dollar revenue can plug both the budget deficit and current account shortfall, and help the government better defend its dollar pegs without tapping on foreign exchange reserves.

Bahrain’s government debt-to-GDP ratio is expected to hit 115% this year, while Oman is predicted to reach 84%, according to data from S&P Global Ratings.

IMF report on Oman positive despite negative shocks

An International Monetary Fund (IMF) mission conducted a virtual mission to Oman from January 17 to 31, 2021 to review economic developments, the outlook, and policies. 

It found that the pandemic shocks took a heavy toll on the economy in 2020. Overall GDP contracted by 6.4%, with non-hydrocarbon GDP estimated to have contracted by 10%.

Construction, hospitality, and wholesale and retail trade sectors were particularly hard-hit. Inflation turned slightly negative owing to subdued demand. There was a nearly 16% expat exodus from the country. 

International reserves declined slightly to around $15 billion (equal to 6.5 months of imports).

Government hydrocarbon revenues fell by 3.4% of GDP.

Overall, the fiscal deficit rose by 10.6% to 17.3% of GDP and was financed by external bond issuance, drawdown of deposits and sovereign funds, and privatization proceeds. As a result, central government debt rose to 81% of GDP, from 60% in 2019.

On the positive side, fiscal measures to support the economy included interest-free emergency loans, waiving or reducing selected taxes and fees, flexibility to pay taxes in installments, and establishing the Job Security Fund to support citizens who lost their jobs. 

In addition, the Central Bank of Oman (CBO) eased financial conditions through lower interest rates and liquidity injections, deferred loan installment payments, and relaxed macro-prudential requirements on capital buffers and liquidity ratios.

The authorities also announced an ambitious medium-term fiscal adjustment plan and broad public-sector reforms that target the elimination of the fiscal deficit over 2021-25 by boosting non-oil revenues while keeping nominal fiscal expenditures broadly constant. 

Also, financial soundness indicators appear healthy. As of December 2020, banks’ capital adequacy ratios averaged 19%. Non-performing loan ratios increased slightly to 4.2%, with specific provisioning coverage of 63% and total coverage of 98%. 

The IMF expects a modest recovery for 2021, with further strengthening of growth over the medium term. 

Overall, a mild recovery of 1.5% in non-oil GDP growth is projected for 2021, rising thereafter to 4% by 2026.