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The stars are aligned for Oman’s economic resurgence

The sultanate could command a healthy share of the Gulf's IPO surge in the next two years

People celebrating on Oman's national day. The sultanate's $47 billion sovereign wealth fund aims to privatise several dozen state-owned companies Shutterstock/katiekk
People celebrating on Oman's national day. The sultanate's $47 billion sovereign wealth fund aims to privatise several dozen state-owned companies

It is no overstatement to say that since the end of the Covid-19 pandemic, Oman has undergone the most dramatic sovereign credit improvement in the Arab world. 

Back in 2020 the sultanate’s $108 billion GDP economy was dwarfed by neighbouring UAE ($509 billion) and Saudi Arabia ($1.1 trillion). 

Oman was also saddled with an unsustainable debt burden which saw a gross public sector debt to GDP ratio as high as 69 percent. 

However, draconian attention to the fiscal deficit and structural reform has reduced the debt-to-GDP ratio to 38 percent with an end-of-2024 target of 34 percent that is highly likely to be achieved.

Omani sovereign credit has thus been one of the best performing investments in Mena debt capital markets. Bond yields have fallen, the major rating agencies have upgraded the sultanate’s sovereign credit rating and debt servicing costs have reduced. 

The fiscal black hole had led to very tight financial conditions in Oman at a time when global trade was just recovering from its pandemic related supply chain trauma. 

This caused GDP growth to fall to as low as 1.3 percent in 2023 – but the macro signs for 2024 are far brighter.

Many factors could converge to boost Oman’s real GDP by 3 percent in 2024: the easing of stringent financial conditions; an $83 a barrel Brent crude price that is at least $15 above Oman’s current budget breakeven price; a rebound in construction and retail; and an expansion of the oil and gas sector with a completion of major infrastructure projects and higher FDI capital inflows.

This all represents a goldilocks moment for the sultanate since inflation is still low at 1.5 percent.

Oman’s structural reform agenda is not yet exhausted, even as the public sector spending deficit has fallen from a dismal 15 percent of GDP in 2020 to a projected balanced budget by the end 2024. 

The $3 billion Etihad Rail project to connect the port of Sohar to the rail networks of the UAE and Saudi Arabia is a gamechanger for cross-GCC economic integration. It will accelerate the port’s strategic importance as the maritime entrepot for Oman’s food, consumer goods and chemicals industries. 

Meanwhile, the Duqm Refinery, a joint venture between Oman and Kuwait, will process 230,000 barrels per day of crude into diesel and refined fuel exports by the end of this year.

Oman’s 5 percent VAT, supplemented by fiscal discipline and economic diversification, reduces the sultanate’s vulnerability to future crude oil price and global credit market shocks. 

The new macro milieu in Oman is thus bullish for the Muscat Securities Market – the only stock market in the GCC other than Bahrain that is classified as a frontier and not emerging market by MSCI. 

Yet this could change. I expect Muscat’s upgrade to emerging markets status as a high probability in 2024, which could lead to a spike in capital inflows from global fund managers.

For myriad reasons, the $749 million OQ Gas Networks IPO in Muscat in October last year was a milestone in the evolution of Oman’s equity capital markets. It was the largest equity IPO in the history of the sultanate, just surpassing the $748 million floatation of Oman Telecom in 2005. 

This mega IPO received no less than $10 billion in bids from local pension funds, regional institutional investors and global fund managers, even though the deal was priced the week shortly after Hamas’s October 7 incursion into Israel and the start of the Gaza war. 

If Muscat is upgraded by MSCI from frontier to emerging markets, I see no reason why Oman cannot see a privatisation IPO-led bull market, as Saudi Arabia, Abu Dhabi and Dubai have experienced over the past two years.

OIA, Oman’s $47 billion sovereign wealth fund, aims to privatise several dozen state-owned companies that could be listed on the Muscat Stock Exchange (MSM) in the next two to three years. 

A privatisation IPO boom will unquestionably raise the regional and global stature of the MSM and deepen both trading volumes and free float. 

While the macro risk to Oman has receded due to the success of the fiscal consolidation strategy, the only cloud is Muscat’s traditional neutrality between Tehran and Washington – Muscat was the host for the diplomatic negotiations between the Obama White House and Iran that led to the JCPOA nuclear deal. 

This could prove problematic if Donald Trump returns as US president and re-imposes his “maximum pressure” sanctions stance on Iran at a time when regional geopolitical risk has increased.

In this scenario, a possible relegation to the FATF grey list could prove detrimental to Omani capital markets at the precise moment when they are poised to regain the confidence of regional and global investors.

Matein Khalid is the chief investment officer in the private office of Abdulla Saeed Al Naboodah and the CEO designate of a venture capital firm. He is also an adjunct professor of real estate investing and banking at the American University of Sharjah.

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