The Omani central bank’s foreign assets fell to a five-year low in July as a deficit in goods and services trade continued to drain the country’s external reserves, central bank data showed on Thursday.
The assets, including gold bullion, slipped to OMR5.92bn ($15.4bn), down 18.2 per cent from a year earlier and 3.5 per cent lower than their level in June.
That left the assets equivalent to about seven months of Oman’s merchandise imports — still a comfortable level, since economists traditionally view three months of import cover as sufficient.
But the decline in assets is worrying to some investors given Oman’s external debt, which has increased rapidly in the last few years as the country borrows abroad to finance state spending and development projects in an era of low oil prices.
The ratio of Oman’s external government debt to gross foreign exchange reserves jumped to 70 per cent in 2017 from 36 per cent in 2016 and 6 per cent in 2015, according to a central bank report published on Thursday.
“Public policy must continue to focus on reducing the non-oil current account deficit so that a recovery in oil prices could be used to strengthen the country’s external buffers,” the report said.
Gross foreign exchange reserves, which include assets such as the holdings of Oman’s sovereign wealth funds as well as the central bank’s reserves, totalled slightly over OMR12bn at the end of last year, according to the report.
Pressure on the reserves has decreased this year as a partial rebound of oil prices has shrunk Oman’s state budget deficit, reducing the need to run down the reserves to cover the deficit.
The budget deficit for the first half of 2018 shrank 42 per cent from a year earlier to OMR1.41bn, according to the latest finance ministry data.
In the first half of last year, the government drew down OMR500m from its financial reserves to cover the deficit; in the first half of 2018, it did not use that method of financing, the data shows.
However, the current account is continuing to drain foreign exchange reserves. Although the Brent oil price has climbed to near $80 a barrel this year, Oman would need oil prices to average $84.1 in 2018 to eliminate its current account deficit, the International Monetary Fund has estimated.