DUBAI Feb 13 Oman may have to start selling
foreign assets or borrow on international markets in coming
years if government spending rises during a period of lower oil
prices and economic growth, a report in a magazine published by
its central bank said.
"The sultanate has to tolerate one of the options in the
coming years if there is any prediction of decrease in GDP
(gross domestic product) growth rates with an increase in
spending," said the article in Al Markazi, a banking and
"The first option is to begin to liquidate assets abroad to
support domestic spending. The second would be to start a
programme of external borrowing next year at the earliest."
The author of the article was not named, and a note attached
to the magazine said the opinions expressed in it were not
necessarily those of the central bank. But an official in the
central bank's media department, contacted by Reuters, said the
article was in line with the bank's thinking.
Oman, which relies on oil and gas for 87 percent of its
budget revenue, faces increasing pressure on its finances
because of rises in state spending on social welfare and
infrastructure investment. The finance minister said last year
that the country might resume borrowing in international markets
for the first time since 1997.
In October, the International Monetary Fund predicted that
Oman would slip into a fiscal deficit of 0.2 percent of GDP in
2015, widening to as much as 7.1 percent in 2018.
That was before the government revealed plans for additional
spending on public wages, which could raise the oil price which
Oman needs to balance its budget to $112 per barrel from an
estimated $105 this year.
Brent crude oil is currently at $108; a Reuters poll
last month showed the market thinks the price will ease to
$104.90 this year and $100 in 2015.
"(The) break-even price reaching up to $112 will make
building financial reserves difficult if not a downright
impossible task," the magazine article said, quoting the finance
It also noted that oil prices could fall substantially if
Iran reaches a comprehensive agreement with world powers on its
nuclear programme this year, allowing economic sanctions to be
lifted and full supplies of its oil to global markets to resume.
"Any decline to about $90 probably because of the return of
Iranian supplies to the international market - in case Tehran
entered into a definitive agreement with world powers on its
nuclear programme - would affect the expectations and the odds
set by the sultanate," the magazine said.
Oman has started to rein in state spending growth, but this
may not be enough to avoid budget deficits in future. State
spending this year is projected at 13.5 billion rials ($35.1
billion), up just 5 percent from the original plan in the 2013
budget, which envisaged a 29 percent leap from 2012.
The country has a relatively modest store of oil earnings
compared to neighbours such as Saudi Arabia. The magazine said
the size of one of Oman's sovereign wealth funds was $8.2
billion, but did not name it or give other details.
Analysts have estimated the country's two most prominent
sovereign wealth funds hold a total of about $16 billion worth
of assets. The central bank's foreign reserves stood at $15.8
billion in December.