Details Cookies
United Kingdom
Important margin product information

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs, FX or any of our other products work and whether you can afford to take the high risk of losing your money.

Cookie policy

This website uses cookies to offer you a better browsing experience by enabling, optimising and analysing site operations, as well as to provide personalised ad content and allow you to connect to social media. By choosing “Accept all” you consent to the use of cookies and the related processing of personal data. Select “Manage consent” to manage your consent preferences. You can change your preferences or retract your consent at any time via the cookie policy page. Please view our cookie policy here and our privacy policy here

The unfolding of a sovereign debt crisis: OMAN The unfolding of a sovereign debt crisis: OMAN The unfolding of a sovereign debt crisis: OMAN

The unfolding of a sovereign debt crisis: OMAN

Christopher Dembik

Head of Macro Analysis

Summary:  In modern history, we have experienced four major phases of sovereign defaults: at the end of the 1820s, in the mid-1870s, at the beginning of the 1930s and from early 1980s to the mid-1990s. The fifth phase of sovereign defaults is certainly about to start on the back of the pandemic. In our view, one of the most vulnerable countries in the GCC economies is Oman. Bahrain is also in delicate financial position, but it has the major advantage over Oman to be financially backed up by Saudi Arabia.

What is our trading focus?

Solid investment grade sovereign vs below investment grade sovereign

SAUDIARABIA-2.375-26OCT21 – Saudi Arabia sovereign bond

SAUDIARABIA-4.5-26OCT46 – Saudi Arabi sovereign bond

ABUDHABI-2.125-03MAY21 – Emirate of Abu Dhabi sovereign bond



The triggers of the crisis:

Oman’s dependence on oil revenue has been reduced over the past years, but it remains very significant. The country is the second most exposed, after Bahrain, to low oil prices in the GCC economies.

The Omani external breakeven – the oil price that it needs to cover the cost of imports – is at around $56 a barrel, double that of the United Arab Emirates. The decline in oil price has already increased pressure on the currency and could put at risk the dollar peg if it lasts longer. Since 1986, Oman has maintained a peg of 0.3849 rial to the USD but, without abundant FX reserves (estimated at US$17bn) and looming debt crisis, the country might be forced to loosen the grip on its currency, as it has been recently the case for Egypt.

The Omani fiscal breakeven – the oil price at which it would balance its budget – is at around $80 a barrel, double that of Qatar, which will increase pressure to cut further domestic spending.

Oman is trapped into a vicious circle of debt. Borrowing needs are particularly consequent to finance the twin deficits: the fiscal deficit is expected to reach 18% of GDP based on an oil price assumption of $35 per barrel, and the current account deficit is expected to climb at 14% this year. Due to the prohibitive cost of dollar debt issuance, Oman has been shut out from bond funding and is unlikely to come back unless yields stabilize. The country is able to meet debt service requirements this year (estimated at $1.2bn) without issuing new bonds, but it faces a great wall of debt from next year with debt service (principal and interest) jumping at $3.4bn in 2021 and almost $4bn in 2022.

As a result of weak fiscal position and stronger reliance on foreign funding, the country’s credit rating has been downgraded to junk status by the three major credit rating agencies (Standard & Poor’s in May 2017, Fitch in December 2018 and more recently Moody’s in May 2020).

The market reaction:

All the GCC dollar bonds have recorded negative returns so far this year as a result of COVID-19 economic uncertainty and the sharp decline in oil prices, but Oman, along with Bahrain, are recording the largest losses. The two countries’ CDS have widened the most among GCC economies. Oman 5-year CDS has increased by 130 basis points since the beginning of this year, at 400 basis points and even reached a peak at 637 basis points in mid-March – the highest level on record. 

Tensions on Oman 10-year CDS have significantly receded from March peak with an increase of only 40 basis points since the beginning of year, but it is still largely above other GCC economies. The 10-year CDS is close to 400 basis points while that of Saudi Arabia is at 120 basis points and that of Qatar at 80 basis points. Oman’s 10-year CDS is basically four times higher than that of other countries from the GCC, with the exception of Bahrain.

Market perception remains widely negative on Oman dollars bonds and the risk of sovereign default in the next five years have never been priced so higher by investors.

Policy response and evolution of the crisis:

The initial policy response has been too slow and insufficient. It basically comes down to two major decisions: implementing budget cuts by 500 million Omani riyals (around €1.2bn) and closing access to bond market, thus sending a very negative signal to foreign investors.

A debt crisis is very likely by 2021 at the latest if the government does not adjust budget more significantly in the coming months and if oil prices don’t jump back to a level close to the country’s fiscal and external breakeven. In the short term, Oman can stay out of the international debt markets as debt servicing in 2020 is rather low, but it cannot remain so indefinitely especially with regard to the great wall of debt from 2021. If financing conditions deteriorate further, the government has little room to maneuver. The country’s sovereign wealth fund – the State General Reserve Fund – has literally zero liquid assets. The government can potentially draw on its foreign exchange reserves which are already low compared to other GCC economies, but this is not the ideal scenario because it could limit its ability to defend its currency’s USD peg, which is likely to be unstable in the coming months. As such, we think the government will have no choice but to request financial assistance from other GCC countries or, in last resort, from the IMF.


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
United Kingdom

Support Centre
For existing clients, please click here to request support via the Support Centre.

Have a question about our products, platforms or services? Visit the Support Centre to find answers for our most frequently asked questions. If you are still unable to locate an answer to your question, you will also find contact details for your local Saxo office to speak with a representative.

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.