BUSINESS REPORTERMUSCAT, Oct 7International ratings agency Moody’s has changed the outlook on the Government of Oman’s issuer rating to positive from stable and affirmed its long-term issuer and senior unsecured ratings at Ba3. Moody’s also affirmed the Government of Oman’s (P)Ba3 senior unsecured medium-term note programme rating.
The change of outlook to positive reflects the strengthening of Oman’s debt burden and debt affordability metrics during 2022, mainly as a result of elevated oil prices, and the prospect that this improvement could be sustained in the medium term. Balance sheet repair that has already taken place this year restores the fiscal space that the sovereign had lost during 2020.
Meanwhile, the prospect that oil prices remain elevated for the next few years affords the government additional time to advance its fiscal and economic reform agenda, increasing the likelihood that Oman’s structural vulnerability to cyclical declines in oil prices and its exposure to longer-term global carbon transition risks will be reduced, the agency stated on Thursday.
The rating action also applies to Oman Sovereign Sukuk SAOC, a special-purpose vehicle domiciled in Oman, whose obligations, in Moody’s view, are ultimately the obligation of the Government of Oman. The entity’s backed senior unsecured ratings and its backed senior unsecured medium-term note programme rating were affirmed at Ba3 and
“A surge in oil prices since 2020 has generated a large revenue windfall for Oman, turning its large fiscal deficits in the past, averaging 9.6% of GDP during 2014-21, into a material surplus. Based on the assumption that oil prices average $105/barrel in 2022, Moody’s estimates that Oman’s full-year fiscal surplus will be close to 6% of GDP this year, offering the government an opportunity to reverse some of the balance sheet deterioration it has sustained since 2015,” Moody’s said.
The government has already used some of the revenue windfall, in addition to its fiscal reserves accumulated in the Petroleum Reserve Fund, to pay down outstanding debt, reducing the nominal level by $6.5 billion (or 7.5% of 2021 GDP) between December 2021 and August 2022. This net debt reduction balances $4.5 billion of new borrowing in the early part of the year against the repayment of $9.3 billion of loans and bonds maturing in 2022 ($2.2 billion of which could have been repaid in 2023 at the borrower’s discretion) and the pre-payment of $1.7 billion of debt maturing in 2023 or later, including through a $700 million eurobond buy-back completed in July.
Based on the expectation of no further net borrowing later this year, consistent with the projected fiscal surplus and no significant debt maturities, Moody’s forecasts that Oman’s government debt will decline to less than 45% of GDP (119% of revenue) by the end of the year from 63% of GDP (186% of revenue) in 2021. This reduction in the debt burden is below the level at the end of 2019 (52% of GDP), more than fully reversing Oman’s loss of fiscal space sustained during 2020 and increasing the sovereign’s resilience ahead of the potential next oil price shock, it stated.
