S&P changes Oman's outlook to positive as fiscal performance improves

S&P Global Ratings has revised its outlook on Oman to positive from stable on a growing economy driven by the government's improved balance sheet and higher oil prices.

Oman's long- and short-term sovereign credit ratings were affirmed at "BB/B", which is one level below investment grade on S&P's scale, the New York-based ratings agency said in a statement on Friday.

The positive outlook reflects the view that Muscat's fiscal and economic reform programme could strengthen the sultanate's fiscal position beyond current assumptions, "adding a greater degree of resilience against the economy's structural susceptibility to adverse oil price shocks", S&P said.

S&P could raise its ratings on Oman over the next 12 months if ongoing reforms further strengthen Oman's fiscal position, "due to a continued reduction in government net debt and interest costs or faster-than-expected deleveraging in the state-owned enterprise sector".

"A stronger economic growth trajectory could also contribute to an upgrade," it said.

However, a downgrade would happen if the implementation of the reforms slows down, "or if we were to expect a sustained period of less favourable terms of trade to result in larger fiscal deficits or a worse external position than we currently anticipate".

Oman launched a three-year fiscal stability programme in October to add to the momentum of the sultanate’s economic recovery from the pandemic-driven slowdown and support the development of the country’s financial sector.

Launched by Oman's Sultan Haitham, the National Programme for Financial Sustainability and Development of the Financial Sector will begin from January 2023, according to a government statement.

The programme will “make the financial sector a major enabler for the growth of investments and the economy, in a manner that guarantees the continuity of all development programmes”.

The sultanate has also signed agreements with its GCC neighbours to boost its economy and create jobs, including a $3 billion railway network with the UAE and a $320 million infrastructure development project with the Saudi Fund for Development.

Oman, the largest non-Opec producer in the Middle East, expects a budget deficit of 1.3 billion rials in 2023, or 3 per cent of its gross domestic product, after an initial forecast of a budget surplus for 2022, the Ministry of Finance said in a report in December.

Oil prices closed higher on Friday for its second consecutive week of gains. Brent, the benchmark for two-thirds of the world’s oil, rose 0.63 per cent, or $0.50, to settle at $79.77 a barrel.

The gauge, however, is down about seven per cent year-to-date in 2023 and by more than a quarter in the past 12 months.

Oman's fiscal and external positions are benefiting higher oil prices, S&P said. The government used windfall oil revenue over 2022 to reduce debt to 17.6 billion Omani rials ($45.7 billion), which is about 40 per cent of gross domestic product, from 20.8 billion rials, equivalent to 61 per cent of GDP at the end of 2021.

The government repaid 511 million rials in debt in January and made additional repayments in March, S&P said. As a result, it estimates that Oman's government debt at the end of 2023 would be 16.5 billion rials, or 37 per cent of GDP.

"The reduced debt stock, along with forecast fiscal surpluses in 2023 and 2024, will increase fiscal policy space," S&P said.

S&P also expects economic growth will to be supported by higher hydrocarbon production in 2023 and 2024, and non-oil growth will become the key driver thereafter.

"We forecast non-oil growth will average about 3.5 per cent over 2025-2026, while the government and its public entities will ramp up investments after a period of holding back," it said.

The International Monetary Fund had forecast that Oman’s real GDP will grow to 4.4 per cent and 4.1 per cent in 2022 and 2023, respectively, from 3 per cent in 2021.

Development projects are also bound to boost Oman's economy, as the government has announced slightly higher spending than budgeted on development projects through 2025.

Among key economic projects in the pipeline include a refinery and oil storage project in Duqm, an ammonia project in Salalah and a recycling industrial waste project, as well as a number of tourism-related projects.

"The authorities have also made strides in improving transparency and data disclosure, including by publishing quarterly GDP and a yearly international investment position," S&P said.