Fitch revises Oman’s outlook to stable from negative after improvements in key metrics

Gulf nation's budget deficit narrowed to 3.4% of GDP this year from 16.1% last year, the rating agency says

Skyline of courage yard, Muscat, Oman (Photo by: Bildagentur-online/UIG via Getty Images) *** Local Caption ***  bz21au-oman-construction.jpg

Fitch Ratings on Monday revised Oman’s outlook to stable from negative following improvements in key fiscal metrics including government debt/gross domestic product and the budget deficit.

The agency also affirmed the sovereign's long-term foreign and local currency Issuer Default Ratings (IDR) at BB-.

The BB ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time, with financial flexibility still in place.

The revision in Oman's outlook was driven by higher oil prices and fiscal reforms in the country and a lessening of external financing pressures relative to recent years, even as external funding needs remain high, the rating agency said in a statement.

Oman’s budget deficit narrowed to 3.4 per cent of the GDP this year, from 16.1 per cent last year, Fitch estimated.

Hydrocarbon revenue grew by a third, its estimates showed, driven largely by a 28 per cent rise in Oman's average fiscal oil price, and likely accounted for more than half of the narrowing in the budget deficit.

“The government has made progress with implementation of its medium-term fiscal plan, which aims to balance the budget and lower government debt/GDP to 61 per cent by 2025,” Fitch said.

In the January-October period, Oman's non-oil revenue grew 40 per cent yearly, enabled by the introduction of a 5 per cent VAT in April, dividends to the budget from the Oman Investment Authority and gradual economic normalisation, as Covid-19-related restrictions were lifted and Oman's vaccination drive accelerated, Fitch said.

As of late November, about 84 per cent of the targeted population in Oman had received two vaccine doses and a booster programme had begun.

Fitch forecast government debt/GDP would settle at lower levels after it peaked at 71 per cent last year.

“Government debt/GDP will have declined in 2021 to 67 per cent and we expect a further improvement to 64 per cent in 2022, before the ratio edges higher to 65-66 per cent, as lower oil prices and modest GDP growth offset gains from fiscal reforms.”

External financing pressures on Oman have eased relative to recent years, although funding requirements remain “sizeable” and Oman's “level of external indebtedness is high”.

Oman smoothly executed its funding plan for 2021, when the sovereign faced $4.6 billion of external debt maturities. External maturities will peak next year at $6.1bn, including a $3.6bn syndicated Chinese loan, before moderating to an average of $3bn in 2023-2026, Fitch said.

Updated: December 20th 2021, 6:25 PM