Loan prepayment buoys Oman’s fiscal position: Expert

MUSCAT, APRIL 2

Effective management of public debt is crucial in reducing the cost of servicing it and the resulting interest on the borrowing portfolio, which could save as much as RO 385 million this year, according to local economic expert Mohammed Ali.

The economist made the comments in response to last week’s announcement by the Ministry of Finance that the Omani government had prepaid the equivalent of $1.5 billion in debt by the end of Q1 2023, effecting paring Oman’s accumulating public debt with consequent savings for the treasury.

Speaking to the Observer, Mohammed Ali highlighted the importance of reducing the interest rate on some loans, which is determined by credit rating agencies and comprises several elements such as actual rate, expected inflation premium, default risk premium, liquidity premium, and maturity risk premium.

To achieve good management of public debt, economic reforms are required to improve spending quality and increase revenues.

He pointed out that such reforms have already been implemented, and surpluses can be utilised to address high-cost loans, which can save significant amounts in interest payments.

“If RO 1.1 billion is not included in the budget table for expenses, the public debt will decrease by less than RO 15 billion, as there is another item allocated for loans this year that must be repaid. Otherwise, the RO 1.1 billion was planned.

Moreover, there is another item allocated for early repayment of approximately RO 400 million,” he noted.

According to Mohammed Ali, these results are a product of economic reforms that provide sustainable solutions, and with the increase in oil prices, positive results can be achieved more swiftly.

Repaying the surplus without resorting to borrowing again is one of the best and safest investments at the moment, with a return on the management of RO 385 million, maximising the benefits of surpluses, he said, pointing out that addressing the public debt file and achieving a secure level holds promising prospects for Oman’s economy.

Among the positive outcomes of the government’s debt prepayment actions are the stimulation of the Muscat stock market and a likely investment boost across the country.

In addition, credit ratings are expected to improve, which will fuel investment growth and bolster the expansion of the economy, he pointed out.

“The financial savings that were previously designated for public debt will significantly reduce costs. This will enable redirecting funds towards other crucial areas, such as social protection and other significant projects.

Furthermore, such measures will contribute to curbing expenses, lowering the breakeven price and securing a more resilient budget to deal with declining oil prices,” the economist added.