It is a difficult time in the Gulf to leverage public resources to meet growing demand for jobs, for infrastructure development, and for efforts to build economies less reliant on oil revenue. For officials engaged in seeking external finance, either through debt or foreign direct investment, finding the right partners becomes more difficult given regional political tensions and the urgency to bridge fiscal deficits and continue project pipelines. Oman exemplifies the challenges of generating investment and infrastructure growth with diminishing fiscal resources.

The Omani strategy has been two-fold: to borrow out of a fiscal deficit and to approach structural reforms with caution, especially given the impact on cost of living and job growth. There is a palpable anxiety among policy advisors about the impact of austerity, and rather than reversing austerity measures (as Saudi Arabia has done, twice in the course of 2017), Oman has tried to concentrate on strategic communications with citizens about the nature of reforms and their immediate impact. In the case of reductions in fuel subsidies, the government created a direct transfer scheme to help low income citizens pay for rising fuel costs. And with mounting pressure to create more public sector employment for nationals, prioritizing stability is understandable. But it will come at a high price.

The mantra is “slow and go.” Ministers and economic advisors in Oman emphasize the need to generate growth and further long-term investment initiatives, even at the expense of a ballooning deficit and forgoing regional trends of tax implementation and subsidy reform. This is the “slow” aspect of the approach; the “go” is in efforts to push forward with large-scale infrastructure and development projects, and finding partners to maintain the steady flow of capital required.

Capital-raising has been intense. Since early 2017, Oman has issued large amounts of debt and borrowed heavily in international bank loans. In March, Oman issued $5 billion in international bonds, followed by a $2 billion sukuk in June. In August, the country borrowed $3.55 billion from Chinese banks. In January 2018, Oman went to bond markets again to issue $6.5 billion in dollar-denominated debt. The government announced plans to finance a new infrastructure fund through bank loans of as much as $1 billion. And on January 23, Oman again announced plans to issue more international bonds for as much as $2 billion. The repayment of these loans and bonds, however, begins just around the corner.

For now, these funds allow the government to move forward with development plans that predate the decline in oil revenue, as well as regional tensions among Gulf Cooperation Council neighbors. While Oman has seen an increase in port traffic and trade flows since June 2017, its airport expansion and strategic ports projects like Sohar and Duqm were well underway before the severing of trade ties with Qatar by the United Arab Emirates, Saudi Arabia, and Bahrain. These investments will take years to generate the wealth the country hopes to find in new logistics, manufacturing, and energy projects; a short-term proof of concept in the uptick of Omani ports volume (due to the restrictions against Qatar) has served to justify some of the ongoing expense of capital raising in a time of shortfall. The port of Sohar is an important case in point, as it has been designed as a free zone to attract foreign direct investment as well as a logistics hub. It serves long-term development needs for Oman, including job creation via automobile assembly plants, smelters and oil refineries, and agricultural depots for food security (for Oman, but potentially for regional neighbors like India as well). And Sohar is a small project compared with the ambitious new industrial city underway at Duqm.

In Duqm, financing has been heavily reliant on China, with smaller investments from GCC neighbors. The China-Oman Industrial Park in Duqm is a custom-made city within a special economic zone, expected to cost $10.7 billion and to be financed through Chinese companies and bank loans. The park will produce cars (a “high-mobility SUV”), solar panels, petrochemicals, and oil field supplies and have its own electricity and desalination plants. Recently, Saudi Arabia has made an effort to support the project, with a small $200 million part grant/part loan financing to fund road construction and a fishing harbor. A 30:70 joint investment between the Oman Investment fund (a sovereign wealth fund of Oman) and the Qatar Transport fund (signed in 2016) will establish a bus assembly plant at Duqm worth 160 million Omani riyals ($416 million). Oil and gas projects, railways and new power plants are also part of the economic development strategy, spreading out from Duqm, including to the south in Dhofar. In Dhofar, Masdar of the UAE will invest in a major wind power farm in Oman, bridging its expertise in regional renewable projects.

While the ports and industrial zone projects are heavily reliant on foreign bonds and bank loans, there is also an effort to streamline the government’s investment portfolio. Oman is a country in which the government plays the most significant role in capital expenditure and investment in the domestic economy. The government, through its various investment funds, like Tanmia, and individually through ministries, mandates most of the development opportunities in the country. A prime example is the Ministry of Defense, and its pension fund, which is a major property owner and developer, with assets like high-end hotels in the sultanate.

The government follows a five year development strategy and has been engaged in its own “national transformation” for economic diversification, with changes to managerial practice within ministries, including meeting key performance indicator targets within the Tanfeedh program. Combining government investment funds and streamlining the multiple ministerial stakeholders in local development projects has meant disrupting inefficient management and integrating parallel investment silos across ministries.

There are new efforts to streamline these various funds, particularly in tourism investments so that outside partners might help shoulder some of the cost (and reap the benefit) of domestic economic development plans, as in the Omran fund. A new infrastructure fund is an important initiative, though currently less than a quarter of infrastructure investment is privately financed, according to consultant estimates. Public-private partnerships are another potential avenue of financing that is largely untapped in Oman.

Policy choices, and the financial agreements to support them, have lasting consequences. Who the new owners of infrastructure, including new power plants, ports, and manufacturing zones, will be is being determined now. Who the bondholders and lenders, those who can influence future policy choices, will be is also important, particularly as there will likely be some refinancing in the near term, as Saudi Arabia is already seeking to do on debt issued just last year. Refinancing the terms of a multibillion-dollar loan with a state-linked Chinese bank could be a bit more complex for the Omani government.

For right now, time has been the most pressing determinant of Oman’s financing requirements, and the lenders and partners that have been willing to step in quickly have been rewarded with favorable terms and access. From the government’s perspective, “slow and go” has had political justifications that are borne out by the lack of shocks in the domestic economy. Long-term growth will require short- to medium-term repayment, and it is in this near term that Oman may need to consider alternative financing partners, particularly with its rising debt to gross domestic product levels.