GCC Economics: Oman’s Macroeconomic And Fiscal Updates - May 2017

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1. June 4 , 2017 GCC Economics: Oman’s macroeconomic and fiscal updates – May 2017  Oman’s 1Q17 deficit has reached OMR 1.6bn more than half of the budgeted deficit for 2017  Real GDP growth is expected to slow down to 2% in 2017, the lowest in 10 years; was 3% in 2016 according to the IMF  S&P cut Oman’s credit rating to non-investment (Junk: BB+) status with a negative outlook Fiscal updates: Oman’s fiscal deficit continues to expand significantly; as at 1Q17, it had reached OMR 1.55bn, over half the planned budget deficit (OMR 3bn) for 2017. Capital expenditure as at 1Q17 reached OMR 0.6bn, accounting for 18% of total planned capex for 2017. Exhibit 1: Oman’s planned budget for 2017 & current fiscal status OMR bn GCC Economics Public Finances Total Revenues Oil & Gas Revenues Non-Oil & Gas Revenues Total Expenditures Current Expenditure Capital Expenditure Subsidies and Others Budget Surplus/Deficit 2017E 8.70 4.69 4.01 11.70 7.99 3.32 0.40 -3.00 1Q17 1.66 -0.30 0.30 3.22 1.83 0.57 -1.55 Source: Ministry of Finance in Oman, SICO Research IMF reckons that Oman’s government has set ambitious fiscal targets for 2017 as it aims to reduce the deficit by almost half to 12% of GDP. However, considering the surge in deficit in 1Q17, without considerable action, the deficit target of 12% of GDP appears difficult to achieve. Economic update: Exhibit 2: Oman’s real GDP growth Oil GDP growth 12% Non oil GDP growth Total GDP growth 10% 8% 6% 4% 2% 0% -2% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017f SICO Research -4% Source: Oman’s Ministry of Finance,SICO Research 2017: Sumaya Ali Tel: +973 17515000 (Ext.5063) Sumaya.ali@sicobahrain.com www.sicobahrain.com Against a widening deficit and low capital expenditure, Oman’s real GDP is expected to slow down to 2% in 2017 according to official forecasts by Oman’s Ministry of Finance, the lowest in 10 years. On the other hand, the IMF has a gloomier expectation of Oman’s real GDP growth and expect it to slow down to 0.4% in 2017 as a result of subsidy and spending cuts, weak economic activity, and the sustainability of a low oil price environment. © SICO 2017 All Rights Reserved Attention is drawn to the disclaimer and other information on Page 6
2. SICO RESEARCH GCC Economics Further , the IMF expects Oman’s non-oil GDP to grow by 2.5% in 2017, while oil GDP is expected to contract by 2%. The imposition of corporate tax and VAT, while positive for improving the country’s fiscal finances, may have adverse effects on disposable income, and a slowing down of economic activities in the near term. 2016: While the National Centre for Statistics and Information (NCSI) has not published actual data for 2016’s GDP, according to the IMF, economic growth moderated in 2016 to about 3% from 4.2% in 2015; with non-hydrocarbon growth slowing from 4.2% to 3.4% given the continued impact of low oil prices. Investment status - credit ratings update: Earlier in May, S&P cut Oman’s credit rating to non-investment (Junk: BB+) status with a negative outlook. The downgrade has been driven by low oil prices eroding the country’s external reserves, according to S&P. The other two major ratings agencies have higher assessments of Oman than S&P. Moody's Investors Service rates the country Baa1 with a stable outlook, three notches above S&P; while Fitch Ratings has a BBB rating with a stable outlook, two notches above. Banking Sector Summary Oman’s banking sector Oman reported stronger deposit growth in March 2017, with total deposits growing by 2.8% MoM while lending growth reached 0.3% MoM. Oman’s banking sector continues to face liquidity pressures, with the latest LDR as at March 2017 reaching 104%. April data – latest published by other GCC central banks: Recent data published as at April 2017 by Qatar, Saudi and the UAE shows stronger balance sheet growth in Qatar’s banking sector with total assets growing by 2% MoM driven by 2% MoM growth in loans (driven mainly by a 5% MoM growth in loans to the public sector), supported by 3.7% MoM growth in deposits. Qatar’s LDR continues to be the highest in the GCC, with loans to deposits ratio reaching 112%. Stronger public sector deposit growth in Qatar has helped push the LDR ratio lower compared to its levels in the same period last year (Note: public sector deposits grew by 12% MoM vs 2% MoM growth in private sector deposits). Saudi Arabia’s banking sector saw modest lending and deposit growth, both rising 0.2% MoM in April, while lending growth in the UAE declined by 0.2% MoM in April against 0.2% MoM deposit growth. Exhibit 3: GCC banking sector data (latest available as at May 2017) Asset Growth Bahrain Data as of Feb-17 Kuwait Mar-17 Oman MoM Lending Growth Deposits Growth YTD YoY MoM YTD YoY MoM -0.1% 1.2% -0.4% 0.2% 18.9% 2.1% 2.1% 10.0% 3.6% 1.4% 6.8% 3.6% Mar-17 0.9% 6.2% -4.0% 0.3% 0.3% Qatar Apr-17 2.0% 10.8% 13.2% 1.9% KSA Apr-17 1.0% 4.3% 3.5% 0.2% UAE Apr-17 0.5% 5.9% 6.9% -0.2% Loans to Deposit YTD YoY Latest Last year -1.5% -8.1% -1.0% 50% 48% 3.0% 12.8% 2.4% 83% 82% 3.5% 2.8% 16.7% 4.3% 104% 104% 11.5% 9.1% 3.7% 22.3% 16.4% 112% 119% 1.9% -0.6% 0.2% -1.0% 0.9% 87% 89% 3.8% 5.0% 0.2% 8.1% 7.1% 93% 94% Note: YTD* is annualised. Source: SICO Research, Respective Central Banks 2
3. (in USD bn) Jul-16 20 15 10 5 YoY [RHS] 250 200 150 100 20% 130 15% 120 8% 10% 110 6% 5% 100 4% 0% 90 2% -5% 80 0% Qatar (in USD bn) 50% 400 40% 350 15% 30% 300 10% 20% 250 5% (in USD bn) YoY [RHS] YoY [RHS] 22 Saudi Arabia YoY [RHS] 20% 680 25% 550 500 15% 450 5% 400 0% 350 0% Kuwait 10% Saudi Arabia 20% 50 10% 200 0% - 0% 150 -5% 450 (in USD bn) 55 (in USD bn) (in USD bn) Jan-17 0% Sep-16 32 140 May-16 42 Jan-16 2% (in USD bn) Sep-15 4% May-15 160 Jan-15 52 Sep-14 62 6% May-14 8% Jan-14 72 Jan-17 Jul-16 Jan-16 Jul-15 Jan-15 Jul-14 Jan-14 Jul-13 Jan-13 Jul-12 YoY [RHS] 250 200 Jan-17 YoY [RHS] (in USD bn) 82 10% Sep-16 30% 600 12% Sep-13 Kuwait Jan-16 Bahrain -5% May-16 120 200 Jan-17 Jul-16 Jan-16 Jul-15 Jan-15 Jul-14 Jan-14 Jul-13 Jan-13 Jul-12 Jan-12 (in USD bn) Sep-15 10% 0% Jan-15 15% 250 (in USD bn) May-15 170 180 300 Sep-14 20% 5% Jan-14 220 200 10% May-14 270 220 350 May-13 -5% YoY [RHS] 400 15% Jan-13 0% (in USD bn) 20% Sep-13 YoY [RHS] 300 Jan-12 Saudi Arabia Sep-12 5% YoY [RHS] 44 May-13 Qatar 85 Jan-13 55 95 Sep-12 60 105 Jan-12 65 115 14% 12% 10% 8% 6% 4% 2% 0% -2% May-12 70 125 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 75 10% YoY [RHS] Jan-12 Kuwait May-12 80 240 Jan-17 15% Jul-16 Bahrain Jan-17 -10% Sep-16 50 Jan-16 0% May-16 10% 70 Jul-15 90 Jan-16 350 (in USD bn) Sep-15 400 20% Jan-15 30% 110 Jan-15 130 (in USD bn) May-15 450 Jul-14 40% Sep-14 150 Jan-14 500 YoY [RHS] May-14 Qatar Jul-13 0% Jan-14 18 Sep-13 2% Jan-13 20 Jan-13 4% 135 May-13 6% 22 Sep-12 24 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 8% Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 Jan-17 Aug-16 10% Jul-12 YoY [RHS] Jan-12 Oct-15 Mar-16 26 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 Jan-17 Jul-16 Jan-16 12% May-12 Jan-17 Jul-16 May-15 Dec-14 Jul-14 Feb-14 Sep-13 Apr-13 Nov-12 YoY [RHS] Jan-12 Jan-17 (in USD bn) Jan-16 (in USD bn) Jul-15 Jan-15 Jul-14 Jan-14 50% (in USD bn) Jan-16 (in USD bn) Jul-15 Jan-15 Jul-14 Jan-14 Jan-12 Jun-12 (in USD bn) Jul-15 Jan-15 25 Jul-14 320 Jul-13 Jan-13 Jul-12 Jan-12 28 Jan-14 85 Jul-13 Jan-13 Jul-12 Jan-12 170 Jul-13 Jan-13 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 30 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 300 Jul-12 Jan-12 Bahrain Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 SICO RESEARCH GCC Economics Exhibit 1: GCC Money Supply (M2) Oman 39 YoY [RHS] 20% 34 15% 29 10% 24 5% 19 0% UAE 30% 25% 20% 15% 10% 5% 0% -5% Exhibit 2: GCC Banks: Assets Oman YoY [RHS] 30% 25% 20% 15% 10% 5% 0% -5% -10% UAE 630 YoY [RHS] 20% 580 15% 10% 530 480 10% 5% 430 5% 380 0% Exhibit 3: GCC Banks: Lending Oman 45 YoY [RHS] 25% 20% 35 15% 25 10% 15 5% 0% UAE 400 YoY [RHS] 350 300 250 12% 10% 8% 6% 4% 2% 0% Source: Respective Central bank 3
4. -40 -50 10 0 80 % 6.5 75% 85% 6.0 70% 5.0 2.0 Kuwait 35 4.0 1.5 30 25 2.0 0.0 20 -2.0 15 -4.0 10 -6.0 Saudi Arabia 65 60 55 50 45 40 35 30 25 -5 Mar-17 85% Asset/Equity [LHS] Jul-16 90% 9.0 Nov-16 Loans/ Deposit [RHS] 95% Oct-13 Saudi Arabia Mar-16 Dec-16 70% Jun-16 6.0 Dec-16 40% Dec-15 75% Jun-16 45% 6.5 Asset/ Equity [LHS] Jul-15 80% (in USD bn) Nov-15 7.0 Jan-17 Sep-16 May-16 Jan-16 Sep-15 May-15 Jan-15 Sep-14 May-14 Jan-14 Sep-13 May-13 Jan-13 Sep-12 (in USD bn) Jul-13 85% Mar-15 7.5 Jun-15 55% 10.0 Jun-15 Loans/ Deposit [RHS] 90% Dec-15 Kuwait Nov-14 -10% Apr-13 -5% 250 Dec-14 300 0% Jul-14 10% Jan-13 0% Jun-14 5% Jun-14 350 Dec-14 10% 450 Nov-13 400 50 Mar-14 15% Dec-13 20% Jul-13 Saudi Arabia Jun-13 YoY [RHS] Jan-12 0% May-12 5% Jun-13 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 110 Dec-13 Dec-12 Jul-16 10% Nov-12 95% 6.0 7.0 Jan-17 120 Mar-13 Dec-12 Dec-16 Jan-16 Jul-15 Jan-15 Jul-14 15% Jul-12 Dec-16 7.5 Feb-17 Oct-16 Jun-16 Dec-15 Jun-15 Dec-14 Jul-13 Jan-14 YoY [RHS] Oct-12 Qatar Jan-13 Kuwait Jul-12 -2.5 Jun-16 8.0 Feb-17 -2.0 Oct-16 0.0 Jun-16 0.5 Oct-15 1.0 Feb-16 Bahrain Asset/ Equity [LHS] Feb-16 125% 8.5 Asset/ Equity [LHS] Jun-16 9.0 Dec-15 105% (in USD bn) Jun-15 115% (in USD bn) Oct-15 Loans/ Deposit [RHS] 135% Jun-15 Qatar Jun-15 50% 8.0 Feb-15 60% Feb-15 Loans/ Deposit [RHS]65% Dec-14 Bahrain Oct-14 20% Jun-14 30% Oct-14 40% Jun-14 450 Jun-14 50% Feb-14 500 Feb-14 60% Dec-13 Qatar Jun-14 5.0 90 Dec-13 10.0 -5% Oct-13 15.0 0% 100 Jul-12 5% Jun-13 40 Jan-12 10% Jun-13 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 15% Jun-13 Dec-12 90 130 Feb-13 Dec-12 140 20% Oct-12 Jul-16 Jan-17 30 140 Oct-13 -1.5 Jun-12 190 Feb-17 Dec-16 Jun-16 35 Feb-17 Oct-16 Dec-16 YoY [RHS] Oct-16 Jun-16 Jun-16 Feb-16 Jul-15 Jan-16 40 25% Jun-13 Oct-15 Feb-16 Jun-16 Jan-15 Jul-14 Jan-14 YoY [RHS] Feb-13 -30 Oct-15 Asset/ Equity [LHS] Dec-15 Jun-15 Dec-14 Jul-13 Jan-13 Jul-12 Jan-12 (in USD bn) Jun-15 Dec-15 Jun-15 Dec-14 Jun-14 Dec-13 Asset/ Equity [LHS] Jun-15 Feb-15 Oct-14 Jun-14 Feb-14 Jun-14 Dec-13 (in USD bn) Feb-15 Oct-14 Jun-14 Feb-14 Oct-13 Oct-13 Jun-13 Feb-13 240 Jun-13 Feb-13 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 45 Oct-12 -20 Jun-13 Dec-12 Bahrain Jun-12 -10 Jun-13 9.5 9.0 8.5 8.0 7.5 7.0 6.5 6.0 Oct-12 Dec-12 20.0 Oct-12 -1.0 Jun-12 -0.5 Jun-12 SICO RESEARCH GCC Economics Exhibit 4: GCC Deposits Oman 45 YoY [RHS] 40 35 25 30 30% 25% 20% 15% 10% 5% 0% -5% UAE 400 YoY [RHS] 15% 10% 350 5% 300 0% 250 -5% Exhibit 5: GCC Leverage Oman 9.0 Loans/ Deposit [RHS] 110% 105% 8.0 100% 7.0 95% 6.0 90% 5.0 85% 4.0 80% UAE Loans/ Deposit [RHS] 110% 8.0 100% 7.0 90% 80% 70% Exhibit 6: GCC Net Foreign Assets (USD bn) Oman -10.0 -8.0 UAE 10 5 0 -10 -60 -15 Source: Respective Central bank 4
5. Jul-14 150 100 50 - Jan-17 250 Jul-16 - 600 - Jan-17 400 Jul-16 Bahrain 5Y CDS Jan-16 Bahrain Jul-15 Jan-17 Jul-16 Jan-16 0 .60 0.40 0.20 0.00 UAE Jan-15 0.80 Saudi Arabia Jul-15 1.00 Oman Not Available Jan-15 1.20 Kuwait Not Available Jul-14 110 Jul-14 115 Jan-14 120 Jan-14 125 Jul-13 130 Jul-13 135 Jan-13 Saudi Arabia UAE 113 111 109 107 105 103 101 99 97 Jan-15 Sep-16 Jan-17 Sep-16 Jan-17 Jan-16 May-16 Jan-16 May-16 Sep-15 Sep-15 May-15 Jan-15 May-15 Sep-14 Sep-14 Jan-14 Jan-14 May-14 Sep-13 Sep-13 May-14 Jan-13 May-13 May-13 Sep-12 Jan-13 97 Sep-12 102 105 Jul-12 110 Jan-12 115 May-12 120 Jan-12 117 May-12 Jan-17 Sep-16 May-16 Jan-16 Sep-15 May-15 Jan-15 Sep-14 May-14 Jan-14 Sep-13 122 130 Jan-13 Jan-13 May-13 135 Jul-12 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 Feb-17 Oct-16 Jun-16 Feb-16 Oct-15 Jun-15 Feb-15 Oct-14 Jun-14 Feb-14 Oct-13 Jun-13 Sep-12 125 Jan-12 Jan-17 Jul-16 Jan-16 Jul-15 Jan-15 Jul-14 Oct-12 Feb-13 Jan-12 May-12 Kuwait Jan-12 Jan-17 Jul-16 Jan-16 100 Jan-16 50 Jul-15 200 Jul-15 100 Jul-14 150 Jan-15 Abu Dhabi 5 Year CDS 500 Jan-15 Abu Dhabi Jul-14 0.00 Jan-14 0.50 Jul-13 1.00 Jan-14 1.50 Jul-13 2.00 Jul-13 2.50 Jan-13 Qatar Jul-12 1.40 Jan-13 Bahrain Jul-12 112 110 108 106 104 102 100 98 96 94 Jun-12 Qatar Feb-12 100 Jan-14 Qatar 5Y CDS Jan-17 Sep-16 May-16 Jan-16 Sep-15 May-15 Jan-15 Sep-14 May-14 Jan-14 Sep-13 May-13 Jan-13 Sep-12 105 Jan-13 Qatar Jan-17 Sep-16 May-16 Jan-16 Sep-15 May-15 Jan-15 Sep-14 May-14 Jan-14 Sep-13 May-13 Jan-13 Sep-12 Jan-12 May-12 110 Jul-12 Jan-17 Jul-16 Jan-16 Jul-15 Jan-15 Jul-14 Jan-12 May-12 115 Jan-12 Jan-17 Jul-16 Jan-16 Jul-15 Jan-15 Jul-14 Jan-14 Jul-13 Jan-13 Jul-12 Jan-12 120 Jan-12 Jan-17 Jul-16 Jan-16 Jul-15 Jan-15 Jul-14 Jan-14 Jan-14 Jul-13 Jan-13 Jul-12 Jan-12 Bahrain Jan-12 Jan-17 Jul-16 Jan-16 Jul-15 Jan-15 200 Jan-14 Jul-13 Jan-13 Jul-12 Jan-12 200 Jul-13 Jan-13 Jul-12 Jan-12 SICO RESEARCH GCC Economics Exhibit 7: Inflation (Based to Jan 2009 = 100) Oman 112 107 Exhibit 8: 3M Interbank spread over 3M LIBOR (in %) 1.20 1.00 0.80 0.60 0.40 0.20 0.00 Note: 3 month Interbank rate minus 3 Month USD LIBOR Exhibit 9: GCC 5-Year Sovereign CDS (in bps) Dubai 450 Dubai 5Y CDS 300 300 150 - Saudi Arabia KSA 5Y CDS 200 150 100 50 - Source: Respective Central bank 5
6. SICO RESEARCH GCC Economics NOTES Contact Details BMB Centre , 1 Floor P.O Box 1331, Diplomatic Area Manama Kingdom of Bahrain st Investment Research research@sicobahrain.com Nishit Lakhotia, CFA, CAIA Tel: (Direct): +973 – 17515021 Brokerage Fadhel Makhlooq Tel: (Direct): +973 – 17515202 Visit us at www.sicobahrain.com Disclaimer This report does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or any invitation to offer to buy or subscribe for any securities. The information and opinions contained in this report have been compiled or arrived at from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness and are subject to change without notice. Investors must make their own investment decisions. Past performance is not necessarily a guide to future performance. Nothing in this report should be construed as investment or financial advice or as an advice to buy or sell the securities of the company referred to in this report. SICO and/or its clients may have positions in or options on the securities mentioned in this report or any related investments, may affect transactions or may buy, sell or offer to buy or sell such securities or any related investments. Additional information on the contents of this report is available on request. Copyright Notice © Securities and Investment Company 2017. This report is being supplied to the recipient for information and not for circulation and may not be reproduced, redistributed or passed on to any other person or published, in whole or in part. 6