Oman’s new sultan embarks on long road to economic recovery

Oman’s new ruler is embarking on possibly unpopular steps to improve the Gulf nation’s finances, in a test of his authority just weeks after succeeding a cousin who had ruled for five decades.

The largest Arab crude producer outside OPEC plans to lower its debt and review state companies, Sultan Haitham bin Tariq Al Said said on Sunday in his first televised address.

Oman has posted deficits since oil prices slumped in 2014, with this year’s shortfall projected at 8.4 per cent of gross domestic product and the International Monetary Fund forecasting no surpluses until at least 2024.

Resources will be redirected to raise revenue, the sultan said, and there will be a “complete revision” of activities and employment at government companies to improve their performance.

“These are the types of rationalizations that have been planned for some time, and are necessary,” said Richard Segal, senior analyst at Manulife Investment in London. The first priority would be to “slow the growth in debt,” he said.

Sultan Qaboos, who died in January at age 79, transformed a country with barely any paved roads into an independent nation of 4 million people with a $79bn economy. He gave women the vote in the early 1990s and enabled them to stand for public office, unprecedented moves for the Gulf, while retaining total control over major political decisions. But in recent years he avoided making tough economic decisions.

Last year, Oman found some success as it sought to diversify sources of revenue. The government began a quest to privatize a number of sovereign entities, including the first major deal with China’s State Grid Corp. to acquire a 49 per cent stake in Oman’s state-owned power transmission company.

Although economic growth stagnated last year, according to the IMF it’s expected to grow this year, driven by an acceleration in the oil sector. The government said it plans to borrow 2 billion rials ($5.2bn) this year to bridge the bulk of the deficit, and aggregate revenue is expected at 10.7 billion rials, up 6 per cent from a 2019 estimate.

The country has four dollar bonds maturing in 2021 and 2022. Oman should “easily be able to refinance” issuances dated June next year, Segal said, as it has plenty of market access. Oman’s debt is rated junk by all three major rating companies.

Standard Chartered expects Oman to emerge from a recession this year on the back of rising gas output, investment in manufacturing, logistics and tourism. The lack of meaningful fiscal stimulus, however, will constrain non-oil growth, Carla Slim, the bank’s economist for the Middle East, North Africa and Turkey, said last month.

The country has to “balance the need to ensure fiscal sustainability with allowing the economy to grow and labor markets to survive,” said Segal, so it would be “unwise to retrench too quickly.”