Oman. Summary. Economic Indicators

Transcription

1 Oman Summary Moody s Baa2 / S&P BB / Fitch BBB Economy: Agriculture 2%, Industry 47%, Services 54% Oman is a founding member of the Gulf Cooperation Council (GCC) and an upper-middleclass country as measured by GDP per capita. Its economy depends heavily on the oil and gas sector, which accounts for 28% of GDP and close to 71% of government revenues. In response to the oil shock, Oman has adjusted its fiscal structure; however, with estimated breakeven oil prices above $76, its fiscal structure remains rigid. Oman s debt level rose fast after the oil shock, increasing from 5% of GDP pre-oil shock to 51% of GDP in 2018, although the country s credit profile is supported by a sovereign wealth fund (SWF). The government is diversifying the economy and building infrastructure projects, including ports and a free trade zone. On the political front, it remains uncertain who will succeed His Majesty Sultan Qaboos bin Said Al Said, who is 76 years old and has ruled Oman since Economic Indicators F 2018F Population (Millions) GDP per Capita (USD) 21,964 21,801 18,484 16,536 17,404 17,663 Nominal GDP (USD Billions) Real GDP (%) Year-End CPI (%) Fiscal Balance (% of GDP) Interest (% of Revenues) FC Debt/Public Debt (%) Government Debt (% of GDP) Government Debt (% of Revenue) Current Account (% of GDP) FDI (% of GDP) External Debt (% of GDP) Foreign Reserves/External Debt (%) Foreign Reserves (Mo. of imports) Foreign Reserves (% of GDP) As of November 2017 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: IMF, Central Bank of Nigeria, Haver Analytics and Lazard 519

2 Lazard Emerging Markets Debt Rating History Below is a history of the country s foreign and local currency ratings by the major agencies dating back to We have also included a chart of the country s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency A AA- A- BBB+ A+ A A- BBB BBB+ BBB- BB+ BB BBB BBB- BB+ BB BB BB Moody's S&P Fitch Moody's S&P Fitch As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Bloomberg, Fitch, Moody s, Standard and Poor s Bond Spreads Oman 2012 EMBIGD 2017 As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 520

3 Oman Strengths Oil Wealth Oman s wealth stems from oil, with proven reserves of 5.4 billion barrels and production of over one million barrels per day. 1 While Oman s reserve level is low compared to other Middle East countries such as Saudi Arabia (266.5 billion barrels), Iraq (153 billion), UAE (97.8 billion) or even Qatar (25.2 billion), oil wealth has nevertheless allowed Oman to reach GDP per capita that is among the highest in emerging markets. Diversification Efforts Oman has implemented five-year plans focused on diversifying the economy. The most recent five-year plan, Vision 2020, aims to reduce oil and gas sector dependency by encouraging investment in other sectors of the economy. Some of the initiatives undertaken by the Sultanate of Oman include important infrastructure projects, such as ports at Salalah, Duqm, and Sohar, as well as the establishment of the Duqm Special Economic Zone. Additionally, the $6.9 billion Liwa Plastic Industries Complex is scheduled to start operations in 2019 and expected to create up to 13,000 jobs. In addition to manufacturing, other priority sectors are transportation and logistics, tourism, fisheries, and mining. 2 The Sultanate is also working on a longer-term plan called Vision 2040, which will outline the country s strategic agenda over the next two decades. 3 SWF and External Assets Oman acts as a net creditor, with external assets of almost $40 billion, or around 56% of GDP. Years of high oil prices have allowed the country to build a SWF called the State General Reserve Fund, with assets of $21.8 billion. 4 Under its current financing plan, Oman will meet one-third of financing needs by drawing upon external reserves and the SWF. 5 Weaknesses High Oil and Gas Sector Dependency Oman remains highly depend on oil and gas revenue, as petroleum-related activities accounted for 71% of 2016 government revenues and the sector accounted for approximately 28% of 2016 GDP, 6 slightly down from 34% of GDP in While some countries can increase production volume to offset lower prices in the medium term, Oman is more restricted as its fields are mature. At the same time, the country s fiscal adjustment has been more moderate than other countries. Oman s breakeven oil price for 2018 is $76 per barrel, the second highest in the GCC after Bahrain. 7 Rigid Fiscal Structure Like other oil-dependent states, Oman has experienced a dramatic decline in oil revenue, which decreased from around 35% of GDP in to 18% of GDP in Before the oil shock, Oman posted fiscal surpluses, but a rapid deterioration of its fiscal accounts led to a deficit of 22% of GDP in 2016, and we expect annual deficits of about 10% in Current expenditures are increasing considerably, from 13% of GDP to 26% of GDP in 2016, driven largely by large increase in wages, which accounts for 9.5% of GDP

4 Lazard Emerging Markets Debt Rising Debt Level Oman s debt level increased from less than 5% of GDP prior to the oil shock of 2014 to an estimated 51% of GDP by 2018 and 63% by Despite this rapid increase, we note that one of Oman s strengths is its demonstrated willingness to manage and decrease debt. For example, Oman s debt to GDP was as high as 40% of GDP in 1998, but the government gradually reduced debt to around 5% of GDP until the oil shock. 12 Mature Oil Fields Oman s oil fields are mature and at its current production rate, existing reserves will be depleted in about 15 years. 13 Given Oman s topology, proven reserves are low, but Oman also has unproven reserves of up to 50 billion barrels that could potentially be tapped with enhanced oil recovery technology. However, this technology may prove too costly or ineffective. Leadership Succession Uncertainty The widely popular Sultan Qaboos, age 76, has ruled Oman since 1970 and been instrumental in modernizing the country. Unlike other GCC countries, in which ruling monarchies have a designated heir, Oman has no designated successor, nor has it indicated potential successors. The constitution indicates that the royal family has three days to choose a successor, and if there is no agreement, a council of military and security authorities is to read a letter with the name of Sultan Qaboos s own choice. 14 However, this process is untested, and a leadership change creates the possibility of a power vacuum or civil unrest

5 Oman Country Background Size 309,500 KM 2 (72nd) Capital Muscat Population 3.4 Million Religion Muslim 85.9%, Christian 6.5%, Hindu 5.5% Median Age 25.6 Years Literacy Rate 93.0% Independence 1650 Political System Absolute Monarchy Government Leadership Sultan and Prime Minister Qaboos bin Said Al Said Legislative Branch Bicameral Council of Oman Economy Agriculture 1.8%, Industry 47.2%, Services 53.9% Merchandise Exports Petroleum, Fish, Metals, Textiles Export Partners China 47.8%, UAE 8.3%, India 4.1% Currency Omani rial (OMR) As of November 2017 Source: CIA 523

6 Lazard Emerging Markets Debt Country Timeline 1964 Oil reserves are discovered; extraction begins in The sultan is overthrown by his son in a bloodless coup. Sultan Qaboos bin Said begins a liberalization and modernization program Oman is a founding member of the six-nation Gulf Cooperation Council Sultan Qaboos extends voting rights to all citizens over the age of 21. Voters were previously chosen from among tribal leaders, intellectuals and businessmen Oman and the US sign a free trade deal. The agreement is approved by the US Congress and Senate in June and July Elections to the Consultative Council, or Majlis al-shura. Following unrest inspired by the Arab Spring, Sultan Qaboos grants the council greater powers Qatar starts bypassing sea, land, and air transport restrictions imposed by its Gulf neighbours by using ports in Oman to carry cargo. Source: BBC Notes 1 BP Statistical Review of World Energy 2017, energy-economics/statistical-review-2017/bp-statistical-review-of-world-energy-2017-underpinning-data.xlsx accessed 30 October The Government of the Sultanate of Oman Bond Prospectus, February The Government of the Sultanate of Oman Bond Prospectus, February The Government of the Sultanate of Oman Bond Prospectus, February Government of the Sultanate of Oman investor meeting The Government of the Sultanate of Oman Bond Prospectus, February IMF MENA Regional Outlook, October Issues/2017/10/17/mreo1017 accessed November 1st The Government of the Sultanate of Oman Bond Prospectus, dated 27 September IMF WEO Data, October The Government of the Sultanate of Oman Bond Prospectus, dated 27 September IMF WEO Outlook Data, October IMF World Economic Outlook, October 2016 data 13 Lazard estimates based on BP Statistical Review of World Energy 2016 data 14 accessed 8 November The Government of the Sultanate of Oman Bond Prospectus, dated 27 September

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