Despite a sharp increase in average oil prices this year, Fitch expects Oman’s budget deficit to narrow only gradually to nine per cent of GDP, still one of the largest deficits among Fitch-rated sovereigns. ‘This has exposed the rigidity of public expenditure and weaknesses in Oman’s fiscal policy framework. We estimate that Oman’s underlying fiscal stance has become more expansionary in 2018, as measured by a widening of the non-oil primary deficit’, the ratings agency said in a statement.
Fitch said although additional hydrocarbon revenue and some non-oil revenue measures have narrowed the deficit from around 14 per cent of GDP in 2017 and more than 21 per cent of GDP in 2016, government spending has increased again.
Fitch estimated that Oman would have needed an oil price of US$96 per barrel in 2018 to reach budget balance. ‘Lower oil prices will limit policy space in 2019-20. We forecast the fiscal deficit will widen to ten per cent of GDP in 2019 under our baseline assumption that average Brent oil prices will moderate to US$65 per barrel.’
The ratings agency assumes that Oman’s voluntary commitment to OPEC will constrain average oil production to the 2018 level of around 980,000 barrels per day, below capacity.
Fitch forecasts Oman’s real GDP growth at 2.8 per cent in 2018, from a contraction of 0.9 per cent in 2017.
It added that there is significant potential for higher growth and government revenue from new hydrocarbon projects, which will be critical to stabilising public and external finances.