New debt management office to benefit Oman


The recent establishment of a full-fledged Debt Management Office (DMO) within the Ministry of Finance is a key plank of the Omani government’s efforts to effectively manage the nation’s public debt, while securing funding for its annual budget deficit at the lowest possible cost. Furthermore, the new Office will lay the foundations for the growth of a liquid domestic debt market, as well as build new levels of credibility and trust with international credit ratings agencies, according to a well-known Muscat-based economist.
Dr Fabio Scacciavillani, Chief Strategy Officer at Oman Investment Fund (OIF), a sovereign wealth fund of the Sultanate of Oman, described the launch of a dedicated unit for public debt management as ‘an extremely positive and welcome development’, given the government’s expected recourse to both external and internal debt markets for its funding requirements.
“The new Debt Management Office will serve as the hub for all of the core activities related to the issuance of sovereign debt,” said Dr Scacciavillani. “This dedicated unit will essentially be responsible for providing inputs on the structuring of any new borrowings, maturity terms, the type of instruments — whether sukuk or conventional bonds, the currency of denomination, the size of each tranche, and so on. In effect, this Office will serve as the interface between the government, on the one hand, and international capital markets, i.e. fund managers, investors, and other key players, on the other.”
A Tanfeedh Initiative
The establishment of a Public Debt Office (since renamed as the Debt Management Office) was first mooted by the National Programme for Enhancing Economic Diversification (Tanfeedh).
“The initiative aims to establish an office to ensure that the financing needs of the government are always met in time. The office will guarantee that cost of the debt is the lowest possible over the medium term, within the framework of an acceptable level of risk. The office will be also responsible for dealing with international credit rating agencies,” said Tanfeedh in an explanatory note.
The Implementation Support & Follow-Up Unit (ISFU), a task force set up under the auspices of the Diwan of Royal Court, recently confirmed that all of the procedures for the establishment of the Debt Management Office were completed last August.
Financial experts agree that Oman’s annual budget deficits, if any, will be partly funded via a combination of internal and external borrowings for the near future — a trend that began in 2015 when oil revenues were in free fall.
Earlier this year, the Omani government sold a $6.5 billion bond, a triple-tranche bond with maturities of five, 10 and 30 years. The Sultanate raised $1.25 billion with the five-year tranche, $2.5 billion with the 10-year and $2.75 billion with the 30-year. The bond sale effectively covered the lion’s share of the estimated RO 3 billion deficit projected in its 2018 state budget. Last year, the Sultanate raised $7 billion from two bond sales to help bridge the budget deficit linked to lower oil revenues.
Fundamental Institutional Tool
Given the burgeoning size of Oman’s debt portfolio of late, a full-fledged Debt Management Office has thus become a fundamental institutional tool for the government, Dr Scacciavillani pointed out.
“This function until recently was not of much relevance, given the tiny size of the debt. Nowadays the management of public debt requires a high degree of sophistication and skill because the international lenders and fund managers expect credible and accurate information delivered in a timely and systematic fashion,” he told the Observer.
Significantly, the new Debt Management Office will be the first port of call for executives representing international capital markets and asset managers, according to the economist.
“Before committing any funding, these investors will want to complete an accurate analysis on Oman’s fiscal policies, public accounting framework, assets and liabilities, forecast of revenues and so on. This is a fairly complicated task because it involves a medium term plan for revenues and expenditures, the evaluation of assets and liabilities of publicly owned enterprises, such as Oman Air, the macroeconomic forecasts, and so on.”
Key Interface
Importantly, the DMO will also serve as the first point of contact for international credit rating agencies, whose ratings generally are of paramount importance for Oman’s ability to borrow internationally at competitive rates.
“Ratings agencies typically discuss with the public debt office of a country its macroeconomic outlook, its capacity to repay its debt, the accuracy of forecasts on revenue and expenditure, the specifics of the accounting system in place, among other parameters. Essentially, the ratings agencies have a predefined rigorous scheme which is applied for evaluating the creditworthiness of all countries — big and small.”
Longer term, Dr Scacciavillani sees the functioning of the DMO as having a positive bearing on the development of a sound domestic debt market as well. “The fact that the Oman government has started to issue debt paves the way for the creation of a liquid debt market. It creates a yield curve which can then be used by entities like banks, corporations, public-private-partnerships, and so on, to price their debt securities, for example. Such a local debt market, for most emerging markets, is instrumental in allocating capital to the financing of economic development.”