Improving Public Debt Management
In the OIC Member Countries
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Foreign borrowingIn June 2016, the government accessed international debt markets for the first time since 1997
and issued bonds in the amount of $2.5 billion denominated in U.S. dollar with five and ten
year maturities. Yields of these bonds were about 4.72% (Wall Street Journal 2016). The
government plans to borrow a further $10 billion in the next four years to plug its budget
balance deficit.
C) Policy RecommendationsAfter decades of very low debt levels, Oman has been experiencing increasing debt levels since
2014 because of the decline in oil prices. To maintain fiscal sustainability and support the US
dollar exchange rate peg over the mediumto longterm, fiscal adjustment measures are
important. Fiscal reforms are also likely to reduce borrowing costs and support economic
growth. Furthermore, the exchange rate peg may lead to overevaluation of the Rial. Therefore
the possibility of adjusting the exchange rate might be considered. The saving measures
already initiated are a step in the right direction. It is recommended to anchor fiscal
adjustments by a mediumterm fiscal framework and include phasing out remaining subsidies,
further contain recurrent government expenditures, and introduce excise duties on specific
goods (IMF 2016). Furthermore, a reform of the pension system may be initiated in the near
future before the fiscal burden on the budget increases even further.
Oman is selling government financial assets to compensate the revenue shortfalls in the shortrun. However the country has limited fiscal buffers and financing the budget deficit may
require additional borrowing, both domestically and externally. Oman has historically
benefited from low debt levels that have kept borrowing costs down. Thus, issuing debt on
international debt markets does not necessarily pose a significant risk at the moment. But as
public debt is rising, this situation may change in the mediumto longrun. Hence, the pace and
efficiency of fiscal reforms may help to pursue sustainable fiscal policies, not only on reducing
the budget deficit, but also on attracting investors.
Developing a further deepened and liquid domestic debt market requires proactive efforts
from the government, central bank and market participants. Regular issuance of government
debt with different maturities would support the establishment of a yield curve and help foster
the development of the domestic debt market. The government may resort to TBills for
financing recurrent expenditures. TBills help the licensed commercial banks to invest their
surplus funds and increase their diversification options for liquidity management. TBills also
promote the local money market by creating a benchmark yield curve for shortterm interest
rates (IMF 2011). Additionally, issuing sukuk might support the development of Oman's
Islamic finance market and can give the government a new channel to raise money from
specialized investors, e.g. state funds.
The authorities in Oman are encouraged to continue strengthening the institutional framework
for public debt management to ensure that financing needs are effectively managed. Oman
may develop a time bound road map for an efficient market for government securities, which
may start with an enactment of a “Public Debt Act for Oman” (IMF 2008, p. 17). The setup of a
centralized, independent Debt Management Office inside the MoF is welcomed. A mediumto
longterm debt management strategy could be developed. A focused issuance program of
government securities is essential to establish benchmark securities, further improve the
CBO’s monetary policy operations and spur market development (IMF 2013).