Oman’s debt capital market (DCM) shrank by 7% year-on-year (YoY) to $44 billion in 2023 as the government pre-paid more of its debt using the budget surplus from high oil prices, Fitch Ratings said in a new report.

However, the share of sukuk in the outstanding debt capital market mix grew to 21.1% from 18% in 2022.

The Sultanate’s debt capital market is in an early stage of development and is the second-smallest among GCC countries.

However, the government has taken proactive measures to foster growth. Initiatives such as the Financial Services Authority’s newly published Sukuk and Bond Regulation and the Ministry of Finance’s sustainable finance framework aim to stimulate market development.

These regulatory moves are anticipated to instill confidence among sharia-sensitive and ESG-sensitive investors, the report said.

Meanwhile, sukuk issuance in Oman expanded by 231% YoY in 2023, to $1.2 billion, while bond issuance fell by 56% YoY to $4.8 billion.

Fitch has rated nearly $7.5 billion of outstanding Omani sukuk – all at "BB+" in Q1 2024, issued by the sovereign (67%) and by corporates (33%).

In September 2023, Fitch upgraded Oman to 'BB+' with a "stable" outlook.

“We do not expect a significant short-term surge in the debt capital market size, mainly due to the indication in Oman’s budget, published in January 2024, that the authorities will continue to pay down government debt,” the rating agency stated.

This will strengthen the sovereign’s resilience to potential shocks, but the increased social spending will slow the pace of debt reduction in 2024, relative to 2023.

The debt capital market will grow over the medium-to-long term, supported by government initiatives and issuance mainly from sovereign and government-related entities, the report said.

(Editing by Brinda Darasha;