Oman Reaps The Reward Of High Oil Prices With Another Ratings Boost

Oman has seen the outlook on its credit rating upgraded from stable to positive by Moody’s Investors Service, in the latest sign of how the economies of Gulf oil producers are benefitting from high crude prices.

Oman is part of the 23-member Opec+ group that agreed on October 5 to cut oil production by 2 million barrels a day (b/d), in a bid to keep crude prices elevated.

The Oman government has used the recent high oil prices to repair its balance sheet and restore the fiscal room for manoeuvre that it lost during the Covid-19 pandemic. It has paid off a net amount of $6.5 billion of debt since the turn of the year.

Moody’s said the change in outlook on the sovereign’s Ba3 rating reflected the improvements in its debt position. It now expects the government’s debt to fall to less than 45% of GDP by the end of the year, compared to 63% of GDP in 2021.

High oil revenues since 2020 have also allowed Oman to move away from a sustained period of budget deficits, which averaged 9.6% of GDP during 2014-21. Moody’s reckons that the Muscat authorities will be able to post a surplus of close to 6% of GDP this year, assuming oil prices average $105 a barrel over the whole year.

The prospect of elevated oil prices over the next few years also means there is a higher chance that the authorities will be able to press ahead with fiscal and economic reforms that could put the economy in better shape to cope with the prospects of a post-oil world.

However, it may be politically difficult to introduce some changes if the government’s finances are healthy, including a planned income tax on high-earners. The tax had initially been expected in 2023, but is now seen as unlikely to come in before 2024.

Such concerns may have informed Moody’s warning that “Oman’s structural vulnerability to potential future declines in oil demand and prices remain very high”. Moody’s estimates that the hydrocarbons sector will account for more than 40% of GDP this year, more than 80% of government revenue and 66% of total exports.

The latest move from Moody’s follows an upgrade of Oman’s rating by Fitch Ratings in mid-August, when it raised the rating from BB- to BB. In April, Standard & Poor’s upgraded Oman from B+ to BB-.

However, a more cautious note was struck by the International Monetary Fund in its latest report on Oman, released the day before the Moody’s announcement. While pointing to the benefits of the oil windfall, the IMF also said “Uncertainties continue to cloud the outlook, with downside risks, notably from global sources, dominating in the short run.”