Analysis-Investors forgiving as #Oman's austerity drive hits bumps in the road | Reuters

Analysis-Investors forgiving as Oman's austerity drive hits bumps in the road | Reuters

Oman may be rowing back on an austerity plan to fix its shaky finances in the face of protests over unemployment but investors are cutting the Gulf state’s new ruler some slack for now.

Sultan Haitham, who acceded to the throne in January 2020, promised last week on the third day of rare demonstrations in several towns and cities to create 32,000 jobs and subsidise private companies that take on Omanis.

But the move did not trigger any major drop in the price of Oman’s bonds, with investors saying some flexibility in its fiscal adjustment was expected to guarantee social stability in a country also hit by protests over jobs and corruption in 2011.

“The market reaction is reflecting an understanding that significant reform, particularly as it relates to taxation in a region that has limited precedence, will meet obstacles, but has not been materially derailed,” said Sharif Eid, a portfolio manager at Franklin Templeton Investments.

“Short term, measured adjustments are to be expected, particularly as they may impact social factors,” he said.

Oman’s government bonds due in 2047 yielded 6.9% at the end of last week, only slightly higher than 6.7% before the protests. In March last year, the yield hit nearly 12% as the coronavirus outbreak triggered a collapse in crude prices.

Oman’s austerity measures unveiled last year are seen as crucial for maintaining the cash-strapped country’s ability to access international debt markets ahead of debt redemptions worth about $11 billion this year and next.

Oman is among the weakest countries financially in the oil-rich region and more vulnerable to swings in the price of hydrocarbons, a sector that accounted for about a third of its gross domestic product (GDP) in 2019.

Since the oil price crash in 2014, its debt to GDP ratio has leapt from about 15% in 2015 to 80% last year, while Oman’s plans to diversify revenue away from oil and to reduce spending on its bloated public sector have lagged.

Oman’s finance ministry and central bank did not respond to requests for comment about the country’s ability to prop up its economy in the face of financial constraints.