Thursday, Apr 12, 2012

Gulf News

Muscat: A Muscat-based analyst said the Omani government could be looking to bridge the budget deficit as well as refinance some of the bonds maturing this year.

Hamoud Sangour Al Zadjali, executive president of the Central Bank of Oman, (CBO) told media in Abu Dhabi that Oman may issue sovereign debt to the tune of 200 million Omani riyals (Dh1.90 billion).

Joice Mathew, senior manager for research at United Securities in Muscat, told Gulf News that proceeds from the new bond issue could be used to reduce the deficit and refinance bonds maturing this year.

The government in its budget document had mentioned that the projected 2012 deficit would be met by a combination of 2011 surpluses and issue of 200 million development bonds, he added.

Mathew also said that the Omani government has 50 million riyals of development bonds maturing this year and another 80 million riyals worth of bonds due next year.

The increased levels of budget spending call for the government to raise additional funds other than its revenue streams to bridge the deficit gap, he said.

The researcher reckons that a bond issue seems to be a good means of financing for the government given that Omans debt levels are the lowest in the region.

Falling rates

Additionally, he said, the low levels of existing debt and higher credibility of the government should help it to raise funds at relatively lower costs.

He believes that the falling interest rate scenario in the sultanate was also conducive to this end.

The banking system in the sultanate is witnessing a consistent increase in money supply, he said.

The latest CBO data shows that the broad money supply increased by 15.5 per cent in February compared to year-earlier levels, and it expanded by two per cent in the first two months of the year.

I think a bond issue would seek to partially mop up the excess liquidity available in the system, which in turn would help in maintaining stable inflation levels, Mathew said.

In his opinion, the Omani government should consider developing an organised debt market and the proposed bond issue as an opportunity towards this objective.

Staggered-issue option

Instead of raising funds through a single bond issue, the government may consider the issuance of small amounts of T [Treasury] bills and dated securities in an orderly manner, which should help the development of an active debt market in the country, he said.

The multifaceted benefits of such an initiative would be liquidity control, meeting the funding needs of the government as well as a step towards helping the private sector in bringing up a platform for fulfilling their funding needs.

However, he pointed out that these would require more regulatory initiatives starting from enactment of a public debt act.

I think a bond issue would be targeting to mop up partially the excess liquidity available in the system, which in turn would help in maintaining stable inflation levels.

By Sunil K. Vaidya, Bureau Chief

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