‘The stable outlook incorporates our expectation that Oman will manage to finance its fiscal and external deficits over our base case forecast for 2018-2021, while economic growth steadies at around three per cent per year’, the rating agency said.
S&P, however, warned that if Oman’s external debtor position deteriorates beyond their current expectations, they could take a negative rating action.
‘We could also downgrade Oman if the central bank’s reserve levels dropped significantly’, the agency said.
On positive side, the global rating agency said they might consider raising the rating if accumulation of external debt gets slower. Since 2014, Oman has been borrowing from overseas markets to bridge it fiscal deficit.
S&P said, ‘We could consider raising the ratings on Oman if our forecasts for the country’s fiscal and external positions substantially improve, perhaps due to markedly slower external debt accumulation’.
‘The government assumes medium-term fiscal targets, implying faster consolidation than we currently assume, partly via the introduction of a value-added tax (VAT) and increased excise taxes. If these more ambitious budgetary targets are met, we think that both net public borrowing and net external financing would decline beyond our current projections and, in turn, benefit Oman’s credit quality’, it said.
The global major said the sultanate’s ratings are supported by Oman’s modest government net debtor position, which they estimate at around one per cent of GDP as of end-2018. ‘Since widening to more than 18 per cent of GDP in 2016, Oman’s general government budgetary deficit is narrowing, set to reach an estimated 7.4 per cent of GDP this year’.
S&P expects Oman’s economic growth to pick up in 2018 to three per cent and to remain at this level over the forecast horizon.
‘We base our medium-term economic forecasts on rising oil production, gas output, and improving non-oil sector growth’, S&P said while adding that it expects oil prices to decline in near future, but the recent ramping up of production in the third quarter of 2018, to 990,000 barrels per day (bpd) in September 2018 from an average of 970,000bpd in the first two quarters, will support the oil sector’s contribution to growth and reduce the negative impact of expected oil price fall.
Non-hydrocarbon growth prospects could be supported by Oman’s diversification strategy, which includes a multi-billion-dollar project for a special economic zone at Duqm, and infrastructure investment to connect the country’s three major ports Salalah, Sohar, and Duqm, S&P added.