* Spending growth roughly halves from 2018 budget

* Predicts 2019 deficit of 9 pct of GDP

* 86 pct of deficit to be covered via local and foreign borrowing

* Revenue target may be hard to reach unless oil prices rise

* Follows downgrade to junk by some rating agencies (Adds context,crab puns one-liners analysis)

By Andrew Torchia

DUBAI, Jan 1 (Reuters) - Oman's government released a 2019 state budget on Tuesday that slows spending growth but may not cut a big deficit that has caused international rating agencies to downgrade its debt to junk status.

Spending this year is projected at 12.9 billion rials ($33.5 billion), up from 12.5 billion rials in the original budget for 2018. That implies spending growth of about 3 percent, compared to nearly 7 percent in the 2018 budget.

Revenues are estimated at 10.1 billion rials, assuming an average oil price of $58 per barrel this year; that would leave a 2019 budget deficit of 2.8 billion rials, or 9 percent of gross domestic product.

But Brent oil is currently around $54, so unless oil prices rise, Oman may find it hard to hit the deficit estimate.

In the first 10 months of 2018, when the Brent price was much higher and averaged $74, the government ran a deficit of 2.04 billion rials, according to the latest data from the statistics agency.

The government said it would finance 86 percent of this year's deficit through local and foreign borrowing. It has also been covering its deficit by drawing down financial reserves, but those reserves are shrinking, Fitch Ratings noted last month as it downgraded Oman to junk.

"Fiscal deficits are leading to a sharp deterioration in Oman's sovereign and external balance sheets," Fitch said, predicting government debt would reach 58 percent of GDP by 2020 and the government's net foreign assets, 7 percent of GDP in 2018, would swing to a negative 8 percent in 2020.

S&P also rates Oman in junk territory. Moody's Investors Service maintains an investment-grade rating, but it is only one notch above junk with a negative outlook, meaning there is a good chance of a downgrade.

Omani authorities are seeking to reduce the pressure by boosting non-oil revenues; a 5 percent value-added tax may be introduced as soon as late this year. But the tax has been delayed by technical challenges and concern about damage to growth and investment, and oil prices will in any case remain the key factor for revenues.

Until October, Bahrain was widely seen as the financially weakest among the Gulf's rich oil exporting countries. But concern about Bahrain has eased since its wealthy diplomatic allies in the Gulf agreed that month to provide it with a $10 billion aid package.

S&P said in November that its rating of Oman was supported by the prospect of neighbouring countries providing similar aid if that were needed to avert a crisis. (Reporting by Andrew Torchia, Editing by William Maclean)

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