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Oman’s Obligation Capital Market saw a significant decline, worsened by the government’s proactive debt repayment. According to a recent Fitch Ratings report, the market experienced a 7% year-on-year reduction, bringing total outstanding debt to $44 billion in 2023. The main reason behind this decrease is the government’s use of budget surplus from high oil prices to pay off its debts early. This strategic move demonstrates Oman’s commitment to fiscal responsibility and debt management, leading to a decrease in overall debt burden and improved financial stability.
The Fitch report notes Oman’s increasing sukuk share, hitting 21.1% in 2023 from 18% prior, signaling the growth of Islamic finance in Oman. Oman’s debt capital market (DCM) contracted by 7% to USD 44 billion in 2023, as the government prepaid more debt with a surplus from high oil prices.
The Omani DCM showcase is in the early improvement stages and is the second-smallest among GCC nations. Nonetheless, the government has taken initiatives to develop the market. This includes the Financial Services Authority’s (FSA) newly published Sukuk and Bond Regulation, a crucial step in DCM development, ensuring regulatory clarity. The Ministry of Finance also launched its Sustainable Finance Framework in January. Under this framework, it aims to issue green, social, and sustainable sukuk, bonds, or loans.
Oman’s Financial Sector Embraces New Regulations to Foster Confidence and Sustainability
The unused controls are anticipated to assist in constructing certainty among both sharia-sensitive and ESG-sensitive financial specialists. The FSA regulates sukuk through a chapter on sharia oversight. Supporters must provide an annual report proving compliance from the day of issuance. Modern control also includes disclosure requirements for green and sustainable bonds. They must appoint an independent external reviewer to assess ESG compliance. Beneath the control, obligation guarantors are required to yield a credit rating certificate.
The Maintainable Fund System doesn’t consider it a default or breach if the government fails to adhere to it. Oman saw a 231% increase in sukuk issuance to $1.2 billion in 2023, while bond issuance dropped 56% to $4.8 billion. Omani sukuk outstanding totaled $7.5 billion, with 67% issued by the government and 33% by corporations, all rated ‘BB+’ by Fitch in Q1 2024. Fitch upgraded Oman to ‘BB+’ with a Stable Outlook in September 2023.
A short-term surge is unlikely in the DCM estimate due to Oman’s budget sign in January 2024. Specialists will pay down government obligations, enhancing the sovereign’s versatility. Increased social investing will slow the debt reduction pace in 2024 compared to 2023. However, over the medium-to-long term, the DCM market is expected to grow, supported by government initiatives and issuance from paramount and government-related entities.
Islamic Finance Flourishes: Oman’s Sector Growth and Banking Outlook
The Islamic fund industry in Oman crossed USD28 billion as of the end of 2023, Fitch gauges, the part between Islamic managing an account resource (66%), extraordinary sukuk (32%), and takaful commitments (2%). In terms of financial division resources (2022: 16.4%), division financing (2022: 18.6%), and division shops (2022: 18.8%), the Islamic managing an account advertise share is 17.4% at the end of 2023. The financing of Islamic banks increased by 11.8% year over year, outpacing the 2.5% growth of regular banks. In any case, stores for Islamic and routine banks developed at the same level, of approximately 12.5% yoy.
Our segment viewpoint for Omani banks is unbiased for 2024. We anticipate genuine GDP to develop by 2% in 2024 (2023: 4.3%), which can go back to the income and commerce era for banks. Fitch anticipates division credit development of approximately 6% in 2024, driven by higher credit requests from corporates, in line with higher government investing in foundation ventures as a portion of Vision 2040. Islamic banks have smaller capital bases than their customary peers, ruining their capacity to participate in expansive government financing ventures.