The key driver of the downgrade is Moody’s expectation that the scope for fiscal consolidation will remain more significantly constrained by the government’s economic objectives than it had previously assessed. ‘As a result, in an environment of moderate oil prices, Oman’s fiscal metrics will weaken to a level that is consistent with a lower rating’, Moody’s said.
The global ratings agency said its negative outlook reflects Moody’s view that the balance of risks to the Ba1 rating is skewed to the downside. ‘Although higher oil prices during 2018 reduced fiscal pressures, narrowing last year’s fiscal deficit by more than five per cent of GDP according to Moody’s estimates, they also reduced the fiscal reform momentum’.
Moody’s said Oman’s 2019 budget contains few new measures that would durably stop or reverse the fiscal deterioration in an environment of moderate oil prices. Assuming that oil prices hover around current levels, Moody’s projects Oman’s fiscal deficits to remain high, ranging from seven per cent to 11 per cent of GDP in the next three years.
The ratings agency noted that the rise in Oman government’s debt burden may be mitigated by planned asset sales.
It said, ‘Despite expected further deterioration of government debt metrics in the medium term, the Ba1 rating is supported by Oman’s very high per capita income and moderately high, although declining, sovereign asset buffers, which will provide some resilience to potential future shocks.’
Moody’s said the sultanate’s rating is also supported by the government’s track record of accessing international capital markets with large size issuances and by Oman’s robust banking sector, which limits the scope for the contingent liabilities risk to the Omani government.