Oman’s sovereign ratings, stable outlook affirmed

BUSINESS REPORTER

MUSCAT, SEPT 10

International ratings agency Capital Intelligence Ratings (CI) announced on Saturday that it has affirmed Oman’s Long-Term Foreign Currency Rating (LT FCR) and Long-Term Local Currency Rating (LT LCR) at ‘BB’. At the same time, CI Ratings has affirmed Oman’s Short-Term Foreign Currency Rating (ST FCR) and Short-Term Local Currency Rating (ST LCR) at ‘B’. The Outlook for the ratings remains Stable.

“The ratings reflect the decline in central government debt in addition to the improvement in fiscal and external strength due to high hydrocarbon revenues and exports. The ratings are supported by the country’s relatively sound banking system, as well as CI’s expectation that financial support would be forthcoming from other GCC countries in the event of need,” said CI.

The ratings are constrained by the economy’s limited diversification, weak budget structure, and slow pace of reforms that would diversify revenues and lower expenditure rigidity. The ratings also take into account significant geopolitical risks, it noted.

Describing Oman’s fiscal strength as “moderate”, CI noted that the government’s budget position has returning to surplus thanks to high international hydrocarbon prices. During the first six months of 2022, the central government budget posted a surplus of 1.9 per cent of GDP, compared to a deficit of 3.4 per cent during the same period of 2021, and is on course to reach 5.6 per cent in 2022 – its highest surplus since 2008.

“CI’s baseline scenario assumes that hydrocarbon prices will remain high throughout 2023-24, averaging USD80/barrel – exceeding the budget’s average fiscal breakeven oil price of USD68/barrel. Based on the above, CI expects the central budget surplus to average 5.9 per cent in the next two years, the agency stated.

Reflecting improving debt dynamics and the $700mn debt buyback of previously issued high interest sovereign debt, central government debt is expected to decline to 44 per cent of GDP in 2022, compared to 65.3 per cent in 2021, it said.

External strength remains moderate, with Oman’s current account position expected to return to surplus in 2022, reaching 5.9 per cent of GDP compared to a deficit of 3.7 per cent in 2021. This trend is expected to continue going forward, with the current account forecast to post surpluses averaging 4.6 per cent of GDP in 2023-24.

Official foreign currency reserves at the central bank (which do not include the assets of the Oman Investment Authority, OIA) are expected to increase to $26.1bn in 2022 (from $19.7bn in 2021). Reserve adequacy is good, with official reserves providing approximately 280 per cent coverage of external debt falling due in 2022 and 47.3 per cent of broad money (M2).

Economic growth is expected to continue to recover, supported by high hydrocarbon production, said CII Rating. Real GDP is forecast to expand by 5.6 per cent in 2022 and is projected to increase by an average of 2.6 per cent in 2023-24.

“The relatively sound financial condition of the Omani banking sector benefits from good capital buffers and the current moderate stock of non-performing loans,” it further added.