In a testament to Oman’s unwavering dedication to fiscal stability, US-based Fitch Ratings has elevated the nation’s long-term foreign currency issuer default rating to “BB+” from its previous “BB” status.
Fitch Ratings cited the Omani government’s resolute commitment to implementing measures aimed at preserving financial security as a pivotal factor behind this noteworthy advancement.
This commitment arises in response to the challenging landscape of oil prices, with the breakeven point having dropped from the range of $80-$90 per barrel between 2017 and 2019 to less than $70 per barrel in 2023.
Fitch Ratings also highlighted that this upgrade signifies the government’s intention to maintain recent fiscal consolidation efforts firmly in place.
Fitch Ratings stated in its report, “The reduction of Oman’s fiscal breakeven price to below $70 per barrel over our forecast horizon from $80-$90 over 2017-19 significantly reduces vulnerability to oil price swings, although risks remain.”
Regarding the reduction of debt, the analysis indicated that Oman is actively repaying a portion of its deficit, utilizing budget surpluses resulting from high oil prices. It anticipates that the debt will decrease by approximately 8 percent in nominal value in 2023.
Fitch added, “The Petroleum Reserve Fund has not been used for these repayments and was over $2.5 billion in August 2023. Oman’s debt management has smoothed its debt profile, reducing the risk of liquidity pressures.”
The rating agency also acknowledged that lower external debt levels have alleviated external liquidity risks, despite repayments preventing the accumulation of foreign assets. It forecasted, “We project sovereign net foreign assets … to return to a positive position in 2023, after falling to -9 percent of gross domestic product in 2020, from 53 percent in 2014.”
Foreign exchange reserves are expected to experience modest growth in 2023 as debt repayments continue to cover 3.3 months of current account payments, although this remains below the ‘BB’ median of 4.3 months, according to the report.
Fitch Ratings also highlighted that investments in renewable energy and the hydrogen sector are poised to drive growth starting from 2025.
In the meantime, Oman’s general budget is anticipated to achieve a financial surplus of approximately 4.1 percent in 2023, 2.4 percent in 2024, and 1 percent in 2025.
The report outlined expectations for public debt, as a percentage of GDP, to decline to around 36 percent in 2023 and remain stable at 35 percent in 2024 and 2025. This is a significant improvement compared to previous forecasts, which had estimated this figure to reach about 45 percent in 2023.
Fitch Ratings applauded the Omani government’s adept management of public deficits and its proactive repayment of some foreign loans ahead of their maturity, capitalizing on additional revenues. This strategic approach was noted for its role in reducing the risks associated with external financial liquidity pressures.
Fitch expressed its anticipation that the rate of net foreign assets would revert to a positive status, and foreign cash reserves would exhibit moderate growth during the remainder of 2023. Furthermore, the credit rating agency suggested that Oman’s credit rating could see further upward movement if external public debt, as a percentage of GDP, continues to decline, and net sovereign foreign assets continue to improve.
