S&P cuts Oman’s credit rating over oil price fall

The credit rating agency downgraded its long-term foreign and local currency sovereign credit ratings to BBB plus from A minus.

S&P has lowered its long-term outlook for Oman, pointing to further economic pressure from the slide in oil prices.

The credit rating agency downgraded the country’s long-term foreign and local currency sovereign credit ratings to BBB plus from A minus.

“The negative outlook reflects our view that the government’s fiscal and external positions could deteriorate beyond our current expectations over the next two years,” said S&P.

The price of Brent crude, the global benchmark, has fallen more than 50 per cent to about US$50 a barrel since highs last summer. S&P has lowered its Brent oil price assumptions to average around $63 per barrel over the next two years – down from $72 per barrel. Omani crude typically trades at a discount to Brent at about $5.

Oman, the largest oil producer in the region outside Opec, is feeling the pressure to cut costs and diversify its economy in order to cushion the blow of a possible continuation of low oil prices. Hydrocarbons are a significant player in the country's economy, making up for about 50 per cent of its GDP, according to Oxford Business Group.

Oman’s oil minister, Mohammed Al Rumhy, said two weeks ago at the Adipec conference in Abu Dhabi that the country was losing $55 million a day as a result of the current market volatility.

“This is a man-made crisis and it is highly irresponsible,” the minister said, pointing to the demands to either maintain market share by some Opec members or new producers attempting to gain a bigger piece of the pie.

The country is producing about 1 million barrels per day, but the increase in production has failed to combat the fallout from the decline in oil prices.

Budget expenditures declined by 3.2 per cent from January to August compared with the same period last year. This was a result of the government cutting its hydrocarbon-related investment and military spending, according to S&P.

But the credit rating firm does not believe that Oman has much room to make further spending cuts as nearly 50 per cent of spending is hard-to reduce public sector wages, subsidies and exemptions.

Oman has set its budget for next year basing it around the assumption of oil prices sitting at $55 a barrel.

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