Debt Trajectory
Oman’s government debt underwent a dramatic transformation over the past decade. From near-zero levels in 2014 (approximately 5 percent of GDP), public debt surged to over 60 percent of GDP by 2020 as the government borrowed heavily to finance deficits caused by the 2014-2016 oil price crash, continued spending growth, and the 2020 COVID-pandemic-related price collapse. Since 2021, higher oil prices and fiscal consolidation have allowed debt reduction, bringing the ratio down to approximately 40-45 percent of GDP. This remains elevated by historical standards.
Debt Composition
Oman’s debt mix includes domestic bonds, international Eurobonds, bilateral loans, and syndicated bank facilities. The shift toward international markets during the borrowing surge exposed Oman to foreign currency risk (though the riyal peg provides some predictability) and international investor sentiment. Credit rating downgrades by Moody’s, S&P, and Fitch during 2019-2020 increased borrowing costs. Subsequent upgrades, reflecting fiscal improvement, have reduced spreads but Oman’s ratings remain below investment grade at some agencies, constraining access and increasing cost relative to higher-rated GCC peers.
Sustainability Analysis
Debt sustainability depends on the interaction of four variables: the primary fiscal balance (revenues minus non-interest spending), the interest rate on debt, GDP growth, and the oil price. At oil prices above USD 75 per barrel, Oman generates primary surpluses sufficient to reduce the debt-to-GDP ratio. At USD 55-75, debt stabilises. Below USD 55, debt begins rising again. The key risk is a prolonged period of low oil prices before non-oil revenue growth is sufficient to maintain fiscal balance – the debt sustainability equation is directly linked to the diversification timeline.
Risk Factors
Key risks to debt sustainability include: an unexpected oil price collapse (as in 2020) requiring emergency borrowing; contingent liabilities from state-owned enterprises (guarantees that could crystallise); infrastructure spending overruns on large projects (Duqm, hydrogen projects); and global interest rate increases that raise refinancing costs. The Oman Investment Authority’s assets provide a buffer, but their illiquidity limits the speed at which they can be monetised in a crisis. Maintaining fiscal discipline during periods of high oil prices – saving rather than spending the windfall – is the most important policy for long-term debt sustainability.