The pace at which the Sultanate of Oman has received ratings upgrades from international rating agencies has been welcomed by Omani authorities, notably the Ministry of Economy.
On Monday, Fitch Ratings upgraded Oman’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to ‘BB’ from ‘BB-‘, while dubbed the outlook as ‘stable’.
Just earlier, in April, S&P Global issued a ratings upgrade of BB- with a stable outlook – the first such ratings boost since 2015. This is in addition to positive reviews from the International Monetary Fund (IMF), the World Trade Organization, and a host of other international institution that have applauded measures by the Omani government to support foreign capital investment, privatisation, public-private partnerships and bankruptcy protection.
In posts on Tuesday, Oman’s Ministry of Economy attributed the ratings upgrade to the prudent policies of the Omani government. A higher rating enhances prospects for investment inflows, while also boosting investor confidence in the country, adding that the ratings boost also fuels the diversification of national income sources.
“In recent years, the Government of the Sultanate of Oman has made great achievements in the roll-out of electronic services as part of the country’s digital transformation, thereby facilitating procedures for investors, as well as small and medium enterprises, on an ongoing basis, to enable them to obtain a suitable environment for their business,” the Ministry stated.
Many of these electronic services, it further noted, can be accessed online, sparing the need for investors to visit government offices for permits and approvals. Besides, the budgetary surplus generated from high oil prices, the Ministry said, would help pay off Oman’s public debt.
In issuing its ratings upgrade on Monday, Fitch noted: “The upgrade reflects significant improvements in Oman’s fiscal metrics, a lessening of external financing pressures and ongoing efforts to reform public finances. Higher oil revenue will underpin budget surpluses in 2022 and 2023 and a sharp fall in government debt/GDP to below the ‘BB’ median. While we expect oil prices to trend down over the medium-term and there has been some dilution of fiscal reform in 2022, we believe that commitment to fiscal consolidation via the state’s medium-term fiscal plan (MTFP) will be sufficient to limit renewed deterioration in public- and external-finance metrics.”
According to Fitch, Oman will continue to benefit from buoyant oil prices over the foreseeable future. Brent crude prices are projected to average around $105/barrel in 2022 and $85/barrel in 2023, while crude and condensate output will grow by 8.8 per cent in 2022 and 3.5 per cent in 2023, boosting hydrocarbon output to a record 1.1million barrels/day. Favourable prices will also boost budget revenue from gas, it said.
“In 2024 we forecast a small budget deficit as lower oil prices (assumed to average $65/barrel) and modest GDP growth offset gains from ongoing fiscal reforms that will boost non-oil revenue and lower overall spending. Non-hydrocarbon tax revenue will increase, following the introduction of VAT in April 2021; personal income tax planned for 2023; and the likelihood of stronger corporate tax revenue,” Fitch further added.
