High foreign borrowing plans to support government spending

Muscat: Oman’s plan to borrow a higher amount from markets abroad indicates that government expenditure will be maintained to support economic growth this year.
Earlier last week, Central Bank of Oman (CBO) Executive President, Hamoud Sangour Al Zadjali had told Al Arabiya television that the country plans to borrow anywhere between $5 billion and $10 billion from abroad to help finance the budget deficit. This is against an initial budget proposal of merely OMR900 million ($2.32 billion) foreign borrowing.
“Funds are needed to continue development projects. There may not be a big cut on government expenditure. There are a lot of big projects that are either in the planning stage or the development phase,” said Suresh Kumar, head of research at Al Maha Financial Services.
Suresh Kumar also noted that higher borrowing is needed in view of the fact that the current crude price is lower than the oil price considered for estimating budget revenue early this year, which was $45 per barrel.
Oman Crude was hovering at $27 a barrel last week.
The major projects that are either in implementation phase or the design stage include the Duqm Refinery ($6 billion), Oman National Railway ($15 billion), the Sohar refinery improvement project ($2.1 billion), the Liwa Plastics Project ($3.6 billion), the Batinah Expressway ($3.9 billion), the BidBid-Sur dual carriageway ($1 billion), Sohar port’s expansion ($600 million) and the Muscat-Sohar pipeline ($300 million) for carrying refined petroleum products.
While some of the companies (like Orpic), which is building these projects, have reached financial closure, major infrastructure projects are being funded by the government.
Market analysts said overseas borrowing would ease pressure on both domestic liquidity and interest rates in the country.
Oman’s central bank chief added that the government plans to issue OMR600 million worth of domestic bonds this year, which is about OMR100 million every two months. Of late, the central bank has floated an OMR100 million-bond issue, which fetched a coupon of 3.5 per cent.
Also, Oman’s debt-to-gross domestic product (GDP) ratio (a common parameter used for measuring the indebtedness of a country) is around 4 per cent, which is quite low when compared to most economies in the world, Anil Kumar N, senior vice-president, Asset Management, the Financial Corporation (FinCorp), had earlier told the Times of Oman.
The country is in a comfortable position to raise funds from overseas markets. The government will be in a better position to borrow funds from wherever it is cheaper and available.