The Central Bank of Oman’s response to COVID-19

OmanMiddle East

Correct as of 9am on 24th March 2020 and is not being maintained.

Like many other countries throughout the world, the Government of Oman has recently announced a series of measures designed to alleviate some of the difficulties presented by the global outbreak of the (COVID-19) coronavirus. This article summarizes some of the key measures announced by the Government and how they might assist in providing much needed support to Omani businesses:

  • Banking and Financial Institutions – In order to increase liquidity in the banking and financial sector, the Central Bank of Oman issued a directive on 20th March 2020 (the “Directive”) which includes: (a) increasing the lending ratio by 5% per cent from 87.5 % to 92.5%; and (b) lowering the mandatory capital conservation buffers by 50% from 2.5% to 1.25%.
  • Loan Repayment – The Directive also requires banks and financial institutions to accept requests for the deferment of loan repayments, particularly with regards to small and medium enterprises (SMEs). This requirement is set to become effective immediately and remain so for the next six (6) months. The only pre-condition is that any such deferment should not adversely impact the loan’s risk classification.
  • Maximum Investment Limits – In order to provide banks with greater opportunities to invest surplus funds, the CBO has also decided to increase the upper limit of the investing ratio for investment into Omani Sukuks and Sovereign Development Bonds from 45% to 50% of their net worth.
  • Government Treasury Bills - The Directive also introduced a reduction in the interest rate of discounting of Government Treasury Bill by 100 bases to 1.00%.

Additionally, the Government of Oman announced that it intends to reduce Government spending by up to 5% and will monitor compliance by performing budget reviews once every three (3) months. In order to effect such changes, the Government announced that it will be drafting a new “public debt law” which will outline the new framework for monitoring and controlling debt. Whilst it is to early to anticipate the precise form that this new public debt law will take, from a basic standpoint, it will likely set forth outline procedures for the issuance, servicing and termination of sovereign debt together with a process for its management.

These measures are expected to introduce greater liquidity into the economy, however, the focus will be to use the additional funds primarily for food security, healthcare services, travel and tourism. To date, no specific details have yet been provided as to how the additional money will be raised, although the total value of the stimulus package is estimated to be around OMR 8 million. The cumulative effect of these measures remains to be seen, however, they will hopefully provide companies with the much-needed breathing space they require to adapt to the current economic conditions.