The key driver of the downgrade is Moody’s expectation that Oman’s fiscal and external metrics will continue to weaken, in part reflecting institutional and policy constraints. Moreover, subdued growth over the next few years will weaken economic resiliency, Moody’s said in a press statement.
The negative outlook reflects Moody’s view that, despite a number of credit strengths, the balance of risks to the Baa3 rating is skewed to the downside. ‘In the absence of significant measures to narrow the fiscal and current account deficits beyond the current plans, Oman’s capacity to absorb potential shocks would erode further’, Moody’s said.
In a related action, Moody’s has downgraded the government of Oman’s senior unsecured medium-term note programme rating to (P)Baa3 from (P)Baa2.
Moody’s on Friday also lowered Oman’s long-term foreign-currency bond ceiling to Baa2 from Baa1 and its long-term foreign-currency deposit ceiling to Baa3 from Baa2. At the same time, the short-term foreign-currency deposit ceiling was lowered to Prime-3 from Prime-2, while the short-term foreign-currency bond ceiling is unchanged at Prime-2. Oman’s long-term local-currency bond and deposit ceilings were lowered to Baa2 from Baa1.
As per Moody’s forecasts, Oman’s fiscal deficit will remain large, around five-seven per cent of gross domestic product (GDP), over the next five years. With persistent sizeable deficits, Moody’s projects that the government debt burden will rise in the coming years, surpassing 50 per cent of GDP by 2019 and rising above 60 per cent by 2021, from 40.5 per cent in 2017.
‘As a result, debt affordability will weaken with interest payments absorbing 8.4 per cent of government revenues by 2019 from an estimated 3.8 per cent in 2017’, Moody’s said.
It said the government’s planned expenditure cuts and additional revenue-raising measures will only narrow the deficit to a limited extent.
Moody’s assumes that oil prices will fluctuate between US$45 and US$65 per barrel over the medium term. ‘Combined with a revenue base still concentrated in hydrocarbon activities (around 70 per cent of total revenue), this means that Oman’s fiscal breakeven oil price of more than US$80 per barrel will remain well above actual oil prices’, it said. Moody’s estimates that Oman’s current account deficit will remain wide, at around nine per cent of GDP in the next few years.