A top government official has revealed that Oman is considering the issuance of a U.S. dollar-denominated sovereign bond, which would mark the return of Sultanate to the international bond market.
Speaking to Reuters, Omani finance minister Darwish al-Balushi stated that “this year we do not plan but maybe for next year, and this is not because of our immediate borrowing requirements but because we want to pave the way for the private sector. We want to establish a benchmark”. Till recently, Oman had only issued small local currency development bonds. In 2012, the ratio of Oman’s gross government debt to gross domestic product stood at 6.1 percent, the second lowest in the Gulf after Saudi Arabia. While parameters of the new dollar bond have not been finalized as yet, it is expected to fetch around USD 500 million.
This would be Oman’s first international bond since 1997 and its second ever to facilitate debt sales by its private sector. In 1997, the country issued a USD 225 million five-year euro-bond at a premium of only 73 basis points over U.S. Treasuries. At that time, the global oil prices hovered around the USD 20 per barrel mark. During the past two decades, oil prices have surged to near USD 100 per barrel and reduced the need to issue debt and Oman has recorded heavy budget surpluses.
In the aftermath of Arab Spring, Oman’s economy has been under pressure to ensure social peace and prevent mass uprisings. The government estimates that global oil prices have to average USD 104 per barrel to balance this year’s budget. The IMF has also painted a bleak picture about the country’s economy, warning that a budgetary deficit of around 3.8 percent and 13.3 percent of GDP could be recorded by 2015 and 2018, respectively.
While the government has shown a resolve to be conservative in future spending, Oman’s entry to the sovereign debt market could encourage regular deficit financing through bond issues in future. The country is also aiming to diversify its economy by investing in large industrial projects.