If oil prices decline and GDP growth slows, Oman will be obliged to sell foreign assets or tap international debt markets over the coming years to cope with rising spending needs, according to the Al Markazi monthly publication released by the central bank.

"The first option is to begin to liquidate assets abroad to support domestic spending. The second would be to start a programme of external borrowing next year at the earliest," the report reads.

The IMF has warned that Oman’s fiscal situation might deteriorate over the next three years. Oman’s state budget might slip into a 3.8% of GDP deficit by 2015, the IMF forecasts. In January, Oman’s Sultan Qaboos Bin Said ratified the state budget for 2014, implying a 5% y/y increase in spending to OMR 13.5bn (USD 35.1bn) and a 4.5% y/y growth in revenue to OMR 11.7bn. The 2014 state budget forecasts an OMR 1.8bn (USD 4.7bn) deficit, accounting for 6% of the projected GDP. The new budget assumes a conservative oil price of USD 85 per barrel. Oman, however, needs a USD 112 per barrel oil price to breakeven its budget, according to government officials.

The Al Markazi publication warned that oil prices could fall sharply if Iran reaches a comprehensive agreement with the international community on its nuclear programme this year. Such a scenario will help lift the economic sanctions on Iran, allowing the country to fully resume its oil supplies to global markets.

Any decline in oil prices to about USD 90 a barrel probably because of the return of Iranian supplies to the international market will affect Oman’s expectations, the publication said.

Oman’s budget reported a OMR 401mn (USD 1.04bn) net surplus in 2013 versus a OMR 80.6mn deficit the year before on strong oil income and falling gross spending, the statistics office said in a preliminary estimate. Total revenue rose 4.5% y/y to OMR 14.1bn, following a period of decline, and gross public spending shrank 19.7% y/y to OMR 10.89bn. Oman plans to sell sovereign Islamic bonds in 2014 to finance its budget needs and potential deficits in the future, according to earlier reports.