Sultanate’s debt to GDP remains low

By Samuel Kutty — MUSCAT: Feb. 14 – Amid widening of Oman’s fiscal gap and rationalisation of government spending, the current level of debt to GDP ratio remains relatively low. Preliminary national accounts data from the Central Bank of Oman (CBO) indicate the nominal GDP declined by 9 per cent during the first nine months of 2016 compared with the same period last year. The decline was reflected primarily in the petroleum sector with a fall of 29.4 per cent and a marginal drop of 0.2 per cent in the non-petroleum sector. Oman crude oil registered an average price of $39.3 per barrel during January-November 2016 compared with $57.4 per barrel in the same period last year.
However, the average annual inflation for the year remained moderate at 1.1 per cent.
“While manufacturing and wholesale and retail trade were adversely affected, value addition showed positive growth mainly in construction, agriculture and fishing as well as in real estate services,” the apex bank said in a report.
The overall GDP value of the agriculture and fisheries sectors has increased with an average growth rate of 7.4 per cent.
“The fiscal gap widened during the year and the government took several measures to augment non-oil revenues and rationalised government spending, apart from stepping up external borrowings, given that the current level of debt to GDP ratio remains relatively low,” the report said.
Oman’s 2017 budget deficit is estimated at about RO 3 billion, which is 35 per cent of total revenues, and 12 per cent of GDP.

Despite the fact that deficit-to-GDP ratio is considered low, according to international indicators, and can be financed by global debt markets, reducing deficit is one of the priorities specified by the budget due to deficit accumulation.
The projected deficit will be financed by external and domestic borrowing.
External dollar borrowing includes issuance of international bonds, Islamic bonds and syndicated loans.
“With the current account in the balance of payments also facing pressure”, the banking regulator ensured that “the foreign exchange reserves in its balance sheet remained intact”.
Global rating agency Fitch recently forecast that Oman’s real GDP will grow 3 per cent in 2016, mainly due to strong increases in oil and gas production, but non-oil activity growth is expected to slow to 2.5 per cent in 2016 and 2 per cent in 2017.
“We expect deficits to decline as oil prices recover and fiscal measures take effect, to 14.4 per cent of GDP in 2017 and 6.4 per cent of GDP in 2018.”
The agency noted that in 2018, the introduction of VAT could add around 1 per cent of GDP, an increase in oil prices by $10 per barrel could add 5 per cent of GDP, and more gas production could add another 1 per cent of GDP to revenue in 2018.