(Bloomberg) —

Oman has started talks with banks for a potential Islamic bond sale this year, according to people familiar with the matter.

The Gulf nation’s discussions are still preliminary, the people said, asking not to be identified because the plans are private. Oman last tapped the international debt market in January, when it raised $3.25 billion. The country’s debt is rated junk by all three major credit assessors.

A spokesperson at the Finance Ministry didn’t respond to emailed requests for comment.

Oman’s public finances, long among the weakest in the Gulf Arab region, remain vulnerable to oil-price swings and disruptions from the global pandemic. The Finance Ministry has said that as of end-March it was more than halfway to meeting its total funding needs of 4.2 billion rials ($10.9 billion) for this year, thanks to borrowing and drawdowns from the country’s wealth fund.

Since taking power in January 2020 following the death of his long-time predecessor, Sultan Haitham bin Tariq has embarked on dramatic measures to bolster Oman’s coffers. The effort has included cutting subsidies, introducing a value-added tax and even planning an income tax — which would be a first for an Arab Gulf state — as part of a medium-term plan to overhaul the economy.

But Oman’s drive to cut spending by weaning thousands of state employees off government jobs may be in peril after days of rare protests. Last month, security forces clashed with dozens of Omani demonstrators, who gathered in the industrial city of Sohar to complain about record unemployment and worsening economic conditions.

Fitch Ratings forecasts Oman will run a deficit of 6.1% of gross domestic product this year and 5% in 2022, compared with over 18% in 2020, as higher oil prices and fiscal measures by the government bring in more revenue. In the first quarter, Oman’s deficit widened to 751.4 million rials, from 26.3 million rials in the same period last year.

Fiscal deficits and external debt maturities will total $9 billion to $10 billion per year — or about 13% of GDP — in 2021-2022, according to Fitch.

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