Muscat: A wave of optimism has energised the private sector as a $5billion injection of foreign funding should ensure private sector salaries are paid, experts say.
Construction bosses, analysts and commerce experts all believe there will be a drip-down effect of the recent international bond sale where banks and government departments will have access to more funds.
The global falling oil price has left Oman – among other oil dependent nations – with a deficit and some payments to the private sector have been delayed.
But the $5 billion shot-in-the-arm should see more cashflow, banks having more money to lend and private companies able to balance their books and pay staff.
The private sector in Oman suffered from a severe dearth of payments as oil prices plunged to a 12 year low in 2016 and some government spending was delayed owing to the deficit.
Experts suggest that the new funding will alleviate pressure on domestic cash issues and drip down the supply chain to company staff.
“Last year when the government issued bonds, we saw payments to private sector accelerate in the following months.
Before that, the funding for ongoing projects was very little and very unpredictable which made it very hard for the construction industry to manage their cash-flows. I believe that after this $5 billion international debt issuance, we should witness acceleration in payments by the government to the private sector, which will complement the OMR1.3 billion allocated in the 2017 budget for on-going projects and old outstanding dues.
The government is continuously exploring ways to ease the situation and support the private sector” Hadi Kahil, Finance Manager at Sarooj Construction, said.
Rahat Ahmed, Senior Manager at a construction company, said: “We expect payments to be made timelier due to the bond sale, which will allow us to pay our outstanding dues to companies and more importantly our employees. Last year, we struggled with paying our staff and most of them opted to leave due to our inability to pay salaries.
“It is very important for us to pay off our staff as soon as possible. I think the situation in 2017 is getting much better.”
Ahmed Al Hooti, Oman Chamber of Commerce member, said: “The banks will be able to support the government or private sector in paying for what they need.
“The reason why the government is not paying banks is because the interests are high and they are not able to keep up with the payments, but with the sale of the bonds, everyone will get their money."
Mohammed Nayaz, Partner, Advisory Services at EY said “This international bond sale is certainly expected to improve the domestic liquidity especially considering that the government is reducing the dependence on funds from bond sale from the domestic market.
“It would be interesting to observe whether the government would pay off the debts owed to the private sector, or spend on infrastructure and social services or divert a portion of the funds into the sovereign wealth fund or a mix of these options. The private sector would be hoping that the Government would expedite the payables due to them.”
Alkesh Joshi, Director of Tax at EY, added: “We expect some of the borrowed amount to be used to pay off debts owed to private sector companies. It’s hard to say but some of it should be used for it.
Financial experts have voiced similar views on the newly fed cash into the economy.
According to a report by credit rating agency Moody’s, ‘International debt issuance will help support domestic liquidity’.
“Domestic liquidity would be supported if part of the proceeds from external sovereign issuance is deposited in local banks. It also reduces the need to raise funds domestically,” Dyck Steffan, Senior Credit Officer and author of the report added.
According to Milhan Baig, Head of Financial Advisory at Deloitte Oman, the government will take into account the significance of the project in diversification of the economy to shortlist initiatives to be funded with the new income.
“While the USD 5 billion international bond issue is positive news for Oman, the use of proceeds will no doubt require careful deliberation for allocation.
Oman’s national vision and its pillars, which entail important initiatives to support economic diversification and Omanisation, will be in point when considering the allocation of proceeds.
However, there will be some strategic thinking also required around prioritizing the proceeds to kick start or complete the projects which are better suited for this round of fund raising,” he said.
Dr Anchan CK, investment advisor in Oman, said that bond issuance will bring back cash to the market.
“Bond issuance will bring back cash.
Banks can strengthen their lending capacity. Eventually, companies will be able to get funds and also loans to pay salaries and clear their dues,” Anchan said.
“International sovereign debt issuances will support deposits in the banking system. These debt issuances will reduce the need to borrow from local banks, and the money raised will flow at least partially as deposits into banks, enabling the economy to grow with more cash liquidity with the banks,” he added.