June 23, 2020 / 8:17 AM / 14 days ago

Oman switches to fiscal surplus after spending cuts

DUBAI, June 23 (Reuters) - Oman switched to a fiscal surplus in the first four months of the year after it cut public spending amid low oil prices and the coronavirus crisis, official figures showed.

While other Gulf states resorted to debt to fill state coffers, Oman - which has over $20 billion in outstanding bonds rated junk by major rating agencies - has avoided international markets after a spike in borrowing costs in recent months.

But severe cuts in public expenditure have led to a surplus of 134.2 million rials ($349.48 million) in January-April from a deficit of 133.2 million rials a year earlier, the figures released by the national statistics agency showed.

“Fiscal consolidation through expenditure rationalisation and sharper non-oil revenue generation is showing up in the statistics,” said Ehsan Khoman, head of MENA research and strategy at MUFG.

Between March and April Oman’s finance ministry directed government agencies to implement several cuts to their operational and development budgets.

It reduced spending for defence and security from January to April by over 17% year on year to 838.8 million rials and development expenditure for civil ministries during the same period by nearly 48% to 171.2 million rials, the figures showed.

The data may give some reassurance to investors in Oman’s debt, concerned over the slow pace of fiscal reforms and economic diversification efforts.

Potential financial support from Oman’s richer Gulf neighbours, particularly if conditional on fiscal consolidation measures, would give investors additional comfort, Khoman said.

Still, Oman faces one of the widest fiscal deficits in the region this year, estimated at over 16% of GDP by both MUFG and the International Monetary Fund.

Recent figures “really showed the proactive stance in pulling back the expenditure,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

But she added that expenditures tend to increase at the end of the year. “We still have to be cautious.” ($1 = 42,000.0000 rials) (Reporting by Davide Barbuscia, Editing by William Maclean)

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