DUBAI, March 10 (Reuters) - Oman is in talks with banks to raise around $2 billion in loans, sources familiar with the matter said, as part of plans to manage an estimated $6.5 billion fiscal deficit that may widen due to plunging oil prices.
Oman, one of the weakest economies in the oil-rich Gulf region, has piled up debt in recent years to offset the impact of falling crude revenues.
Its debt to GDP rate soared to nearly 60% last year from around 15% in 2015, and according to S&P Global Ratings it could reach 70% by 2022.
The rapid pace of debt accumulation has raised concerns over its sustainability in view of the slow pace of fiscal and economic reform. This has triggered downgrades by all major credit agencies, which now rate Oman below investment grade.
An Omani official confirmed that the Sultanate was talking with banks but declined to give details, citing confidentiality. The finance ministry did not immediately respond to a request for comment.
The two sources said the government was in talks for around $2 billion in loans. One source said it issued a request for proposals to banks, which are expected to submit responses by the end of this week.
Oman has projected a deficit of 2.5 billion rials ($6.49 billion), or 8% of GDP, this year and planned to cover some 80% of that amount through foreign and domestic borrowing.
Its new ruler Sultan Haitham bin Tariq al-Said, who assumed power in January, said last month the government would work to reduce public debt and restructure public institutions and companies to bolster the economy.
His predecessor, Sultan Qaboos, who ruled for nearly 50 years, held back on austerity measures that could have caused unrest.
Raising debt via bank loans rather than public bonds could potentially shield Oman from market volatility which could trigger higher borrowing costs.
A plunge in oil prices triggered by a price war between Saudi Arabia and Russia, after they failed to agree on production cuts, is likely to further aggravate the sultanate’s finances.
Monica Malik, chief economist at Abu Dhabi Commercial Bank, said she expected all Gulf Cooperation Council states to incur a significant fiscal deficit at the current oil price of $37 per barrel, with Oman worst exposed along with Saudi Arabia.
Oil prices jumped by 5% on Tuesday after the biggest one-day rout in nearly 30 years on Monday.
$1 = 0.3850 Omani rials Additional reporting by Aziz El Yaakoubi; editing by John Stonestreet