S&P affirms Oman ratings on country's economic growth outlook

Oman's credit ratings given stable outlook by rating agency

As expatriates leave with the onset of Omanisation, landlords in the sultanate are struggling to survive as their properties lie empty. Philippe Lopez / AFP

S&P Global Ratings affirmed Oman’s BB/B foreign and local currency credit rating and said the outlook was stable due to an expectation that the economy’s performance will improve amid stable oil production and growth in the non-oil economy.

“The stable outlook balances our expectation that Oman’s fiscal and external deficits will narrow over the next 6-12 months against the risk that its still-significant external buffers will deteriorate further,” the rating agency said.

Oman’s economy, which is highly dependent on the oil sector, is expected to grow 3 per cent in 2018 after contracting an estimated 0.3 per cent last year, the rating agency said. The country’s economy remained vulnerable to volatility in energy prices and oil production volumes but over the medium term is expected to be less exposed amid rising oil prices and more stable oil production. Brent crude reached $77 a barrel on Friday just below $78 reached earlier in the week which was the highest since November 2014.

The rating agency said it expects an increase in gas output from the massive Khazzan gas field. The operation, a joint venture between BP, which has a 60 per cent stake, and the government-owned Oman Oil Company and Exploration and production, which has a 40 per cent stake, began production in September 2017.

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While S&P estimates that the country derives 30 per cent of its nominal GDP from the hydrocarbon sector, the rating agency said the sultanate is making strides towards diversifying its economy. Those efforts include a multi-billion-dollar project for a special economic zone at Duqm where the government is in the process of transforming the area into a seaport, tourism and industrial hub. Oman has also announced an internal rail project designed to connect the country’s three major ports of Salalah, Sohar and Duqm.

Although the country’s fiscal and external deficits are improving, they still remain large and require external financing, according to the rating agency. Oman became a net external debtor in 2017. It will continue to be a net debtor over the coming three years, though this may be mitigated to some extent by private investments.

“We also observed that in 2017 increased inward foreign direct investment and portfolio equity inflows from the private sector mitigated the extent of net external borrowing needs,” the report said.

“If this trend were sustained over the forecast horizon, the accumulation of net external debt may be slower than we currently assume.”