Oman Edges Closer To Investment Grade Rating With Moody’s Upgrade

Moody’s Investors Service has upgraded its credit rating on Oman from Ba3 to Ba2 and kept its positive outlook on the rating, as the Middle East country edges closer to losing its ‘junk bond’ status.

In a statement on May 15, the ratings agency said the upgrade reflected the improvements that Oman’s government had made in reducing the size of its debt burden. The authorities in Muscat have been taking advantage of the oil and gas windfall they have enjoyed over the past year to pay off some of the country’s debts.

Moody’s said this trend could be sustained over the next few years, even if oil prices move lower – a position it has taken based on a perception that the government will be able to maintain its recent track record of spending restraint.

Oman has seen its large fiscal deficit of recent years – it amounted to an average of nearly 12% of gross domestic product (GDP) in the period 2015-20 – turn into a surplus of 3.4% of GDP last year. That was almost entirely due to higher oil and gas revenues, which were up by 30% in 2022 alone.

However, it has also been helped by restrained spending by the government – a notable fact in a region where high oil revenues have in the past often been accompanied by sharp rises in handouts to citizens and local businesses.

The Muscat government has increased some domestic fuel subsidies, but this has been more than offset by the higher revenues. That meant that the government was able to pay off more than 15% of the country’s outstanding debt last year, cutting its overall debt burden from 61% of GDP in 2021 to 40% of GDP in 2022. Its foreign-currency denominated external debt fell from 46% of GDP to 30% of GDP over the same time period.

During the first quarter of this year, the government cut its debt by a further 6% compared to the amount outstanding at the end of 2022.

Whether the government intends to continue with its current position, or to loosen the purse strings a little more, should become more apparent when it releases the latest version of its Medium-Term Fiscal Plan later this year.

Moody’s has warned that the state remains exposed to volatility in global oil demand and prices and, while that vulnerability has diminished in recent years, it has not disappeared completely. However, it also added in its latest assessment that the government has the chance to continue with its current reform program and to reach a point “consistent with a higher rating level” over the next few years.

Moody’s current rating of Ba2 for Oman still leaves it in non-investment grade territory, but two further upgrades to its rating would mean its debts were once again seen as investment grade – something that should further reduce the weight of its debt burden.

Other credit ratings agencies have taken similar action on Oman over the past year. Fitch Ratings upgraded its position on the country from BB- to BB in August 2022 and revised its outlook to positive in April this year. Standard & Poor’s also upgraded Oman to BB in November last year and revised its outlook to positive in March.