Fitch: Oman Budget Signals Slower Debt Reduction, Increased Social Spending

Aerial photo of the Sultanate of Oman. (Asharq Al-Awsat)
Aerial photo of the Sultanate of Oman. (Asharq Al-Awsat)
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Fitch: Oman Budget Signals Slower Debt Reduction, Increased Social Spending

Aerial photo of the Sultanate of Oman. (Asharq Al-Awsat)
Aerial photo of the Sultanate of Oman. (Asharq Al-Awsat)

Fitch Ratings Agency reported on Tuesday that the Sultanate of Oman's budget for the current fiscal year signals that the authorities will continue repaying government debt. This helps bolster the state's resilience in the event of potential shocks.

However, Fitch noted that the trajectory of debt reduction in 2024 is expected to be tempered by an uptick in social spending.

“We now forecast the surplus to fall to 1.8% of GDP in 2024, from an estimated 3.3% in 2023, based on the budget data and our latest oil price assumptions. In our December sovereign data comparator, we had projected the surplus would remain broadly stable at 2.1% of GDP in 2024, from 2.2% in 2023,” said Fitch.

“The smaller surplus in 2024 will partly reflect a projected 1% drop in oil output, in line with the recent reduction of the country’s OPEC+ production quota, as well as a modest weakening in international oil prices, which will weigh on revenues.

The budget projects non-oil revenue growth to be driven by stronger economic activity, with no significant new revenue-raising measures being announced,” according to Fitch.

The overall effect on Oman’s credit metrics should be broadly in line with the assumptions we made when we upgraded the sovereign’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'BB+' from 'BB', with a Stable Outlook, in September 2023.

The government plans to widen the social safety net, which will add about 1% of GDP to spending and was reflected in our assessments in September. Fuel subsidy costs will remain considerable, at about 0.7% of GDP in 2024, though we expect the government would scrap the subsidy should global energy prices fall.

The authorities also plan to keep public capex broadly stable in 2024.

“Overall, we expect spending to remain prudent, with key current expenditure items generally growing in line with nominal GDP.

The budget gives no indication of significant backtracking on recent fiscal consolidation measures, and we expect further modest progress on electricity price reform. Meanwhile, the public finances will benefit from slightly lower debt service costs in 2024 following liabilities management operations that the government has conducted since 2022.”

The government will use part of the surplus to continue debt repayment. Oman’s use of the revenue windfall from high oil prices to reduce debt and spread maturities was a driver of our decision to upgrade its ratings in September.

“However, we expect the pace of debt reduction to ease in 2024, with government debt/GDP falling to around 33% in 2024 from 36% in 2023. This will be driven not only by the smaller surplus, but also by the authorities’ plans to channel some of the surplus to Oman Future Fund to support economic development.”

The report concluded, "Economic diversification efforts will face significant hurdles and it will take time for us to assess their record. In the meantime, Oman’s public finances will remain vulnerable to global oil price shocks – albeit less than they were before the Covid-19 pandemic.

External debt maturities remain significant at USD6 billion per year for the government and state-owned enterprises combined, although less burdensome than in recent years.”



IMF: Pakistan Wins More Financing Assurances from Saudi Arabia, UAE, China

Pakistan’s Prime Minister Shehbaz Sharif (Asharq Al-Awsat)
Pakistan’s Prime Minister Shehbaz Sharif (Asharq Al-Awsat)
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IMF: Pakistan Wins More Financing Assurances from Saudi Arabia, UAE, China

Pakistan’s Prime Minister Shehbaz Sharif (Asharq Al-Awsat)
Pakistan’s Prime Minister Shehbaz Sharif (Asharq Al-Awsat)

Pakistan has received “significant financing assurances” from China, Saudi Arabia and the United Arab Emirates linked to a new International Monetary Fund (IMF) program that go beyond a deal to roll over $12 billion in bilateral loans owed to them by Islamabad, IMF Pakistan Mission Chief Nathan Porter said on Thursday.

Porter declined to provide details of additional financing amounts committed by the three countries but said they would come on top of the debt rollover.

The IMF's Executive Board on Wednesday approved a new $7 billion loan for cash-strapped Pakistan, more than two months after the two sides said they had reached an agreement.

The loan — which Islamabad will receive in installments over 37 months — is aimed at boosting Pakistan's ailing economy.

“I won't go into the specifics, but UAE, China and the Kingdom of Saudi Arabia all provided significant financing assurances joined up in this program,” Porter told reporters on a conference call.

The global lender said its immediate disbursement will be about $1 billion.

In a statement issued Thursday, the IMF praised Pakistan for taking key steps to restore economic stability. Growth has rebounded, inflation has fallen to single digits, and a calm foreign exchange market have allowed the rebuilding of reserve buffers.

But it also criticized authorities. The IMF warned that, despite the progress, Pakistan’s vulnerabilities and structural challenges remained formidable.

It said a difficult business environment, weak governance, and an outsized role of the state hindered investment, while the tax base remained too narrow.

“Spending on health and education has been insufficient to tackle persistent poverty, and inadequate infrastructure investment has limited economic potential and left Pakistan vulnerable to the impact of climate change,” it warned.

Prime Minister Shehbaz Sharif in a statement hailed the deal that his team had been negotiating with the IMF since June.

Sharif, on the sidelines of the United Nations General Assembly, told Pakistani media that the country had fulfilled all of the lender’s conditions, with help from China and Saudi Arabia.

“Without their support, this would not have been possible,” he said, without elaborating on what assistance Beijing and Riyadh had provided to get the deal over the line.

The Pakistani government has vowed to increase its tax intake, in line with IMF requirements, despite protests in recent months by retailers and some opposition parties over the new tax scheme and high electricity rates.

Pakistan for decades has been relying on IMF loans to meet its economic needs.

The latest economic crisis has been the most prolonged and has seen Pakistan facing its highest-ever inflation, pushing the country to the brink of a sovereign default last summer before an IMF bailout.

Inflation has since tempered, and credit ratings agency Moody’s has upgraded Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to “Caa2” from “Caa3”, citing improving macroeconomic conditions and moderately better government liquidity and external positions.