OMAN: VAT law decree issued and bond now likely this week

GULF COUNTRIES - In Brief 12 Oct 2020 by Justin Alexander

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Sultan Haitham just issued Royal Decree 121/2020 for the VAT Law. We are trying to get hold of a copy of the final draft. News reports say it will begin in "six months" which we are guessing means 1 April, but have yet to confirm this (OO). When parliament approved the law six weeks ago it recommended a 2022 start date, but we argued that the Sultan didn't need to follow this advice and was likely to enact it by mid-2021. Given the lead time involved for the Tax Authority and businesses to implement VAT, six months (or five and half to be precise) is close to the shortest viable lead time. The fact that the law is enacted, albeit more than three years later than originally envisaged, is an important move forward for fiscal reform and the Sultan's decision to ignore parliamentary advice on the timing is a further signal of seriousness. Oman has a very significant fiscal challenge ahead in the coming years to implement painful spending cuts and finance large deficits and maturing debt (as detailed in our 28 Sep note), but this is an important step. Delaying the VAT until 2022 would have meant it would need to have found an additional 1% of GDP in additional financing on top of everything else.We think the delay on the VAT law was part of the reason why the bond we had expected wasn't issued at the end of September. This is likely to happen now, particularly ahead of the S&P ratings update on Friday. The fact that the yield environment recovered somewhat last week should also help, with the yield on the 2048 bond narrowing by around 80bp to around their recent mid-September lows, providing another reason why Oman might judge the timing is right.