Muscat: Oman government’s plans to borrow as much as OMR900 million from overseas markets will ease pressure on both domestic liquidity and interest rates in the country.
Although the total foreign borrowing is estimated to be OMR1.03 billion, OMR130 million will be used for repaying maturing loans this year, resulting in an estimated net flow of a OMR900 million fund, according to a state budget document made available to the Times of Oman (TOO).
“The plan looks very clear since only 10 per cent of the deficit financing will come from local borrowing, which can easily be accommodated,” said a senior market analyst, on the condition of anonymity.
“Borrowing from the local market is only OMR300 million, which will not disturb domestic liquidity. This will give some comfort to local banks,” added the market analyst.
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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 with most economies in the world, said Anil Kumar N, senior vice-president, Asset Management, the Financial Corporation (FinCorp).
“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,” added Kumar.
“There is scope for going ahead for additional borrowing plans, which will help raise funds for development projects,” noted S Suresh Kumar, head of research at Al Maha Financial Services.
Of the total estimated deficit of OMR3.3 billion for 2016, OMR600 million will be from net grants, OMR900 million from foreign borrowing, OMR300 million from domestic borrowing, and OMR1.5 billion from general reserves.
In fact, there was considerable pressure being exerted on liquidity in the financial system during the last few months after the government raised funds by way of development bonds and a maiden sovereign sukuk (Islamic bond) issue.
Although budget estimates for domestic and foreign borrowings were pegged at OMR600 million (OMR200 million net borrowing from foreign markets and OMR400 from domestic market) for 2015, the actual borrowing was much higher in the aftermath of falling oil revenue.
The maiden sovereign sukuk issue from the government alone collected OMR250 million, while more than OMR400 million was raised by way of several development bond issues last year.