The Sultanate’s authorities, led by the Ministry of Finance, have outlined a slew of measures aimed at reining in the country’s sizable public debt, which is projected to reach RO 21.7 billion by the end of this year.
The measures, spelt out in the 2021 General Budget as well as the Medium Term Fiscal Plan released last November, seek to reduce Oman’s twin deficits — the annual budget deficit as well as the soaring public debt — to sustainable levels.
An immediate concern for the government, given the burgeoning size of the country’s public debt, is the skyrocketing interest cost of servicing its borrowings. It is estimated at an unprecedented RO 1.2 billion during 2021 alone, up from an estimated RO 860 million in 2020, according to the Ministry of Finance.
This compares with an interest burden of RO 35 million in 2014, when Oman’s dependence on external borrowings to finance the budget deficit was relatively modest.
“To finance the fiscal deficit, the government relied on borrowing, largely from the external market. As a result, the total debt increased from RO 1.5 billion in 2014 (about 5 per cent of GDP) to RO 17.6 billion in 2019 (60 per cent of GDP), while interest payments increased from approximately RO 35 million to reach RO 684 million in 2019 and nearly RO 1 billion in 2020’’, said the ministry in its Medium Term Fiscal Plan.
Significantly, around 76 per cent of Oman’s total public debt of RO 21.7 billion (projected by the end of this year) represents external borrowings. The latter comprises a mix of direct loans, as well as international bond and sukuk issuances.
The main strategy for containing and eventually whittling down the country’s public debt pile is enshrined in the Medium Term Fiscal Plan, which sets out a five-year roadmap (spanning the 2020–2024 timeframe) for bringing Oman’s difficult fiscal position under control.
Central to the plan are five imperatives which call for, among others things, diversifying sources of government revenue, improving public spending efficiency, strengthening the social security net, and enhancing the efficiency of public financial management.
“The plan will help improve the Sultanate’s financial position and reduce the public debt and improving the overall credit environment in the Sultanate’’, said the ministry.
“The long-term effects of the plan will create a competitive environment for investments and projects that will lead to jobs and greater domestic and international investment. Moreover, this plan will help to support the objectives of long-term economic growth and improve the living standards for the population of the Sultanate.”
Furthermore, a new Public Debt Law is being enacted to streamline government borrowings from domestic and international institutions.
In addition to the planning and management of government debt, the legislation will help diversify funding sources, strengthen monitoring of public debt and associated risks, and modernise mechanisms for cash flow management in the public treasury.
Paring the country’s ballooning public debt is also critical from the standpoint of improving Oman’s sovereign credit ratings, which are imperative to the goal of securing international funding at competitive interest rates.
“Sovereign credit ratings impact the ability of a sovereign to access the international debt markets, guide on expected interest rates, and determine the type of issuance options available. With the accelerated credit rating downgrades, the Sultanate’s ability to access international credit markets has become more limited, and the borrowing options more difficult and costly’’, the ministry added.
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