Oman may have to consider selling off foreign assets to fund planned public spending initiatives if oil prices continue to fall, according to a report published by Oman's central bank.
Oman's economy is fueled by the oil & gas industry, which provides 87% of the country's revenue. Oman currently needs oil to sell at $105 per barrel in order for its economy to break even. However, a planned increase in public sector wages could increase that figure to $112 per barrel.
With the price of Brent crude currently hovering around $108 per barrel, Oman is able to deal with this relatively small short fall.
However, as supplies from Iraq, Iran and Libya are expected to rise in 2014, many analysts have predicted that the price of oil could fall to $105 per barrel by the end of the year.
With Oman planning a raft of public sector spending initiatives, the fall in the price of oil could force the sultanate to borrow money from international markets for the first time since 1997.
The report issued by Oman's central bank proposed two necessary courses of action regarding the country's economy, should the price of oil continue to fall.
"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 said.
The IMF predicted that Oman would be in a fiscal deficit of 0.2% by 2015. This figure was set to widen significantly to 7.1% by 2018.
It is worth considering that some analysts have predicted a sharp decline in oil prices, fueled mainly by the cheap availability of US shale gas and the prospect of Iran resuming full production should sanctions be lifted entirely. Such a sharp fall in prices would drive the price of oil drastically below the break-even level required by Oman.
"Any decline to about $90, probably because of the return of Iranian supplies to the international market, would affect the expectations and the odds set by the sultanate," the report said.
Compared with neighbours Saudi Arabia and Kuwait, Oman has relatively modest oil reserves and will need to realign its spending plans or borrow from international markets should the price of oil continue to slide.