Fitch assigns ‘BBB’ for Oman IDRs with stable outlook

Jan 4: Fitch Ratings assigned a ‘BBB’ rating for Oman’s long-term foreign and local currency issuer default ratings (IDRs) with a stable outlook.

“Oman’s ratings reflect its low public and external debt, strong balance sheet and high GDP per capita, balanced against its double-digit fiscal deficit and a very hydrocarbon-dependent budget and economy,” a report by Fitch said.

Fitch also published the country ceiling of ‘A-’, and short-term foreign and local currency IDRs of ‘F2’.

“Its World Bank governance indicators are at the ‘ BBB’ median level but are held back by low scores on voice and accountability,” the global rating agency said in the report.

The rating agency expects that external debt issuance and draw-downs from wealth funds to finance budget deficits will result in sovereign net foreign assets falling to 28 per cent of GDP by 2018 from 48.5 per cent of GDP at end-2016, the report indicated.

Fitch also forecast that the government’s net domestic assets will remain above 10 per cent of GDP. At those levels, the government would still have a stronger balance sheet than most countries in the ‘BBB’ rating category, it added.

“We expect deficits to decline as oil prices recover and fiscal measures take effect, to 14.4 per cent of GDP in 2017 and 6.4 per cent of GDP in 2018. Electricity tariffs will be hiked for large consumers in 2017, further lowering the subsidy bill”, it said.

Increases to various fees and levies, removal of corporate tax exemptions and an increase in corporate tax rates could boost non-oil revenue by 1 per cent of GDP in 2017. In 2018, the introduction of VAT could add around 1 per cent of GDP, an increase in oil prices by $10/bbl could add 5 per cent of GDP, and more gas production could add another 1 per cent of GDP to revenue in 2018.

“Risks to this fiscal adjustment are skewed to the downside, with oil prices expected to stay well below our estimates of fiscal breakeven levels for Oman ($80/ bbl in 2016, dropping to $69/bbl by 2018)”, it commented.

The government is planning to meet two-thirds of its financing need through external debt issuance, and the remainder through reserve draw-downs.

“We assume a further $2.5 billion of international issuance by the government in 2017-18, accompanied by $1.5 billion of withdrawals from the SGRF”, the report said.

In 2016, the government issued $4.5 billion in bonds and sukuk, and received $ 2 billion in export financing, and Petroleum Development Oman has borrowed $4 billion to finance the government’s contribution to its expenditures. The government has also built up arrears to contractors and postponed recapitalisation payments to pension funds.

Oman’s ratings reflect its low public and external debt, strong balance sheet and high GDP per capita, balanced against its doubledigit fiscal deficit and a very hydrocarbon-dependent budget and economy