In an issuer comment report on Oman’s 2019 budget, Moody’s said the sultanate’s budget plan contains few significant new measures that would help to reverse Oman’s fiscal deterioration, stabilise its debt dynamics and reduce its vulnerability to potential declines in oil prices.
Oman’s 2019 budget is based on an average oil price assumption of US$58 per barrel. The budget estimates a deficit of RO2.8bn for this year (or around nine per cent of GDP).
‘We expect that Oman’s fiscal deficits will remain sizeable over the next several years, leading to a further increase in the debt-to-GDP ratio to above 60 per cent by 2021 from around 44.5 per cent in 2018, although planned state asset sales, if successfully executed and directed to finance the budget deficit, could slow this pace somewhat’, Moody’s said.
The ratings agency said Oman maintains a comparatively robust government balance sheet, including US$22.2bn (27 per cent of GDP) of wealth fund assets as of June 2018. ‘This, together with long government debt maturities, demonstrated access to market financing, and high per-capita income levels, will support the sovereign’s creditworthiness and provides some flexibility for pursuing fiscal adjustment in the coming years’.
‘However, in the absence of new policy measures, Oman’s deteriorating debt dynamics will remain highly sensitive to oil prices, which we believe could fluctuate in the US$55-US$75 per barrel range in the medium term,’ Moody’s said.
It said Oman’s large fiscal imbalances have historically been the main driver behind the country’s large current account deficits. ‘Although last year’s increase in oil prices led to a significant improvement in Oman’s trade surplus, which rose to US$11.5bn in the first nine months of 2018 from US$3.5bn during the same period of 2017’.
Moody’s added that oil price volatility since October 2018 has again cast a spotlight on Oman’s fiscal and external vulnerabilities as captured by the 2018 fiscal and external breakeven oil prices, which it estimates to be more than US$90 per barrel.