Oman's debt crisis: World Bank explains how Muscat can improve fiscal condition

Issam Abousleiman, World Bank regional director of GCC countries has explained his take on Oman's growing debt and how the Arab country should tackle the situation. He believes that Oman needs fiscal consolidation and better public expenditure alongside implementing reforms to mitigate its growing debt.

Oman's credit rating has been pushed down to junk status after a slump in oil prices led to a shortfall in revenues after which the oil-reliant economy had to rely heavily on external borrowing which further led to mounting debts.

"There's concern about the growing debt, debt has grown very fast, this is one area they need to pay special attention," World Bank's Abousleiman said.

S&P Global Ratings estimates Oman's debt to have increased to 49 per cent of GDP in 2018 from less than 5 per cent in 2014, and it expects it will rise to about 64 per cent by 2022.

Although higher oil and gas prices in recent months have helped Oman, S&P still believes that country's fiscal and external buffers will continue to erode in the absence of substantial fiscal measures to curtail the government deficit.

Abousleiman says that economic diversification and reforms being pursued by Oman can take it out from where it is now but Muscat will have to stick to them.

Oman's economy will see growth slowing to 1.2 per cent in 2019 as the sultanate's commitment to December 2018 Opec+ output cut constrains oil production, a report released by the World Bank on Wednesday, said.

For 2019, the oil producer has projected a budget deficit of 2.8 billion Omani rials ($7.3 billion) or 9 per cent of gross domestic product, assuming an average oil price of $58 per barrel.

Growth in the Gulf Cooperation Countries (GCC) in 2019 is projected to be similar to 2018 at 2.1 per cent before accelerating to 3.2 per cent in 2020 and stabilising at 2.7 per cent in 2021, the report said. Saudi Arabia, the largest Gulf economy, is expected to see growth moderating to 1.7 per cent in 2019 as higher government spending offsets the impact of oil production cuts implemented in the first half of 2019.

Saudi can reduce its fiscal deficit through efficient expenditure management, Abousleiman said. Saudi has forecast a fiscal deficit of 4.2 per cent of GDP for 2019, down from an estimated 4.6 per cent of GDP in 2018.