Deficit reduction, notes Fitch which gives investors respite from Oman’s debt

DUBAI (Reuters) – Bond investors in Oman gained some breathing room this week as Fitch confirmed its rating for the indebted country and the government released encouraging deficit figures, potentially paving the way for the next sale debt of the Gulf oil producer.

Deemed to be junk by the three major rating agencies, Oman has relied heavily on borrowing in recent years to spur growth and fill its coffers – depleted due to falling oil prices.

Fitch confirmed its BB + rating this week with a stable outlook, saying its assessment took into consideration “the undiversified economy, high fiscal and external deficits and debt ratios,” but that the country’s foreign asset position remained stronger than that of his peers with a similar note.

The statement came after Oman released new figures on its state budget deficit late last week, which in the first five months of this year fell to 358.4 million rials (930 , $ 98 million), a reduction of 67% on an annual basis.

Oman’s financial position is among the weakest of the Gulf’s oil exporters – with gross public debt of 53.5% of GDP last year, according to the IMF – so the deficit data and claim of Fitch reassured investors about his debt.

“The assertion of Fitch’s rating and recent budget figures have reassured the market,” said Zeina Rizk, director of fixed income asset management at Arqaam Capital.

Oman bonds due 2047 rose more than 40 basis points on Tuesday, according to data from Eikon Refinitif.


Oman’s deficit in the first five months of this year was “the smallest deficit in this period since 2014,” said Jean-Paul Pigat, head of research at Lighthouse Research.

It was not clear what had led to such a reduction.

Total government revenue this year through the end of May increased 15% year-on-year, with net oil revenue up 6% and gas revenue up 14%.

But the biggest percentage gain comes from unspecified “other income”, which rose 53%, and corporate income taxes, which rose 46%.

The country is expected to issue about $ 2 billion in new debt this year, sources told Reuters, out of total financing needs of more than $ 6 billion.

“Oman needs to tap the market this year, but in order to do so, the market needs a tangible tax reform plan,” Rizk said.

Despite its undesirable ratings and structural budget problems, Oman is not in a “default scenario,” said Aarthi Chandrasekaran, portfolio manager at Abu Dhabi-based Shuaa Capital. “They have some time to get the economy back in order maybe until 2021 before things get critical.”

While encouraging, May’s budget figures do not guarantee that Oman’s fiscal situation will continue to improve this year.

Part of the deficit reduction is due to lower government spending, down 4.3% on an annual basis, but S&P Global Ratings expects spending to increase for the remainder of the year, said said Zahabia Saleem Gupta, associate director at S&P.

The agency estimates that the budget deficit will rise to 10.6% of GDP in 2019, from 8.9% in 2018, mainly due to the fall in oil prices compared to last year and the stability of the economy. oil production, she added.

Editing by William Maclean

Carol M. Barragan