Oman’s Baa1 rating balances high wealth and govt net asset position

Reliance on oil and gas sector will remain credit challenge: Moody’s

FRANKFURT AM MAIN, March 26: Oman’s Baa 1 rating with a stable outlook reflects its high wealth levels and a still comparatively strong government balance sheet, balanced against credit challenges, including its heavy reliance on the oil and gas sector, Moody’s Investors Service said in a report today.

The annual update, “Government of Oman — Baa1 Stable, Annual Credit Analysis”, is now available on www.moodys.com. Moody’s subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.

“Although we expect government debt to rise to 40% of GDP by 2018 from less than 5% at the start of the oil price shock, Oman’s fiscal buffers will support the country through its process of fiscal and external adjustment,” said Steffen Dyck, a Moody’s Senior Credit Officer and co-author of the report. “Yet, Oman’s heavy economic and fiscal reliance on the oil and gas sector will remain an ongoing source of credit challenge.”

For 2016-2020, Moody’s forecasts real GDP growth in Oman of around 2.1% per year on average, significantly lower than the 3.8% average annual growth seen between 2011 and 2015.

This forecast is based on Moody’s expectation of only limited increases in oil and gas production and the dampening effect from ongoing fiscal consolidation on non-oil real GDP growth.

Moody’s expects Oman’s 2017 fiscal deficit to narrow substantially to OMR 3.1 billion ($8.1 billion, 11.4% of GDP) from an estimated OMR 5.0 billion ($13.0 billion, 20.1% of GDP) in 2016, and fiscal deficits will continue to decline gradually over the following years.

Helped by higher oil prices, hydrocarbon revenues will start to gradually rise from 2017. Nonoil revenues will also gradually increase over the coming years, backed by a re-pricing of government services, the corporate income tax rate increase, and the expected introduction of value-added tax from 2018 onwards.

The stable outlook reflects the anticipated resilience of Oman’s rating over the next 12 to 18 months and signals that upward and downward pressures are balanced.

Upward pressure on the rating would stem from faster-than-expected progress in containing government fiscal deficits and debt and in diversifying the economy and government finances away from oil.

On the other hand, downward pressure would emerge if government finances deteriorate faster than Moody’s baseline scenario currently anticipates. Greater-thanexpected weakening in the balance of payments would also be credit negative.