Malaysia, Indonesia to spend $5m each on joint palm council

KUALA LUMPUR: Malaysia and Indonesia will invest $5 million each on the initial operations of a new joint palm oil body aimed among other things at stabilising prices and managing stock levels, the countries announced yesterday.

The council’s secretariat will be located in Jakarta and its membership will be extended to all oil palm cultivating countries, including Brazil, Colombia, Thailand, Ghana, Liberia, Nigeria, Papua New Guinea, the Philippines and Uganda. Formation of the new joint council took place at the ASEAN summit in Kuala Lumpur. It was witnessed by Malaysian Prime Minister Najib Razak and Indonesia’s President Joko Widodo.

Malaysia and Indonesia first announced the Council of Palm Oil Producer Countries in October with the aim of ensuring further industry cooperation, establishing a global framework for sustainable palm oil, stabilising prices and managing stock levels.

The world’s top two producers, who supply 85 percent of global palm oil, are trying to tackle various industry challenges from high stockpiles to weak prices and a polluting haze caused by smoldering forest fires. —Reuters DUBAI: Credit rating agency Standard & Poor’s has downgraded Oman’s sovereign debt in a sign of growing pressure on the finances of some Gulf Arab oil exporters. “We project that a period of sustained low oil prices will impair Oman’s fiscal and external balances more than we had previously expected,” S&P said late on Friday as it lowered its long-term local and foreign currency ratings to BBB-plus from Aminus. S&P kept a negative outlook for Oman, citing risks over the next two years. “We could assess Oman as having insufficient fiscal and external strength to offset the concentration of its economy in the hydrocarbons sector and the resulting volatility.”

Moody’s Investors Service has an A-1 rating for Oman, three notches above S&P, with a negative outlook. It warned in August that Oman’s high levels of government spending would not be sustainable over a multi-year period of low oil prices.

S&P took its action after Omani finance ministry data released this week showed the government posted a budget deficit of 2.93 billion rials ($7.62 billion) in the first nine months of 2015, against a 136.1 million rial surplus a year earlier.

The Omani government’s original 2015 budget plan envisaged expenditure of 14.1 billion rials and a deficit of 2.5 billion rials, assuming an average oil price of $75 per barrel. Brent crude is now trading below $45.

Oman has minimal overseas debt and the government remains able to sell rial bonds without difficulty to local banks and investors, so the downgrade is likely to make little difference to Omani finances or markets for now. But it could cost Oman if a protracted domestic borrowing program eventually squeezes funds available in the domestic banking system, forcing the government to raise money abroad.

Pressure has grown in the past few months on the credit ratings of Gulf countries whose finances are seen as relatively weak. They face the same problems as Oman: a plunge in oil revenues, political and economic obstacles to cutting expenditure, and difficulty in increasing non-oil revenues through measures such as taxes. Last month S&P cut its ratings for Saudi Arabia’s long-term foreign and local currency sovereign credit by one notch to Aplus/A-1. High yields at a $1.5 billion bond sale by the Bahraini government this week showed many investors are pricing in an expected downgrade of Bahrain, currently rated BBB-minus by Fitch Ratings.

By contrast, the three other rich oilexporting countries of the Gulf - the United Arab Emirates, Kuwait and Qatar have much larger financial reserves relative to their populations and face no imminent risk of downgrade. The ratings agencies maintain stable outlooks for them and credit default swaps markets, used to insure against a debt default, have barely moved in the last few months, indicating investors do not think that will change. —Reuters