Oman Gets Rating Boost, As It Tries To Make The Most Of Oil Windfall

Fitch Ratings upgraded Oman’s long-term foreign currency issuer default rating on August 15, from BB-to BB, with a stable outlook.

It is a further sign of how Middle East oil producers are profiting from the spike in oil prices this year, driven by Russia’s invasion of Ukraine in February. Helped by the same trends, the Saudi economy is set to expand to more than a trillion dollars in value this year.

Oman is a far smaller economy, but Fitch pointed to “significant improvements” in the sultanate’s fiscal metrics this year, with higher oil revenues underpinning budget surpluses and prompting a sharp fall in the ratio of government debt to GDP.

The ratings agency is forecasting a budget surplus of 5.5% of GDP in 2022 and 3.4% in 2023 – after eight straight years of deficits. The trend across this year and next year comes despite Fitch pencilling in a decline in average oil prices from $105 a barrel this year to $85 next year.

Oman’s situation is also helped by a gradual ramping up of its crude oil and condensate output to an expected high of 1.1 million barrels a day over the period.

The Omani government has been using its oil and gas windfall to pay off some of the country’s debts. In the first seven months of this year, it cut the public debt burden by RO2.2 billion ($5.7 billion). It now stands at around $48.3 billion.

The economy has also been drawing in some investment from richer neighbors, with Saudi Arabia’s Public Investment Fund recently making a $299 million commitment.

The government has also been using some of its additional income to soften the impact on its citizens of high fuel prices and inflation more generally. Fitch said spending is expected to be higher than budgeted in 2022 due to fuel and other subsidies for locals. It also noted that the timeframe for phasing out electricity subsidies has been extended from five to ten years.

However, there are still plenty of challenges ahead for the government, and policy-makers in Muscat will be aware that oil prices tend not to remain high for extended periods. Fitch said Oman’s funding position was now considerably more comfortable compared to recent years, but added that its “medium-term funding requirements remain sizeable and Oman’s level of external indebtedness is high”.