Credit rating upgrades reflect lower risks to Oman’s economy

Favourable sovereign credit rating actions during 2021 and 2022 by the three major rating agencies reflects the improved medium-term outlook for the Omani economy and lower systemic risks, according to a new report.

Inflation in Oman has also remained well-contained compared to the majority of the world, the Central Bank of Oman said in its first issue of Macroeconomic Stability Report (MSR) on Tuesday.

The report will be issued annually and complements CBO publications and adds to its timely communication approach with in-depth diagnostic analyses of Oman’s macroeconomic performance. The CBO further said in its MSR that inflation was within limits predominantly due to the impact of the fixed peg in maintaining price stability, the remaining subsidies on essential commodities, the exemption of many essential consumer goods from the Value Added Tax and the adoption of a price ceiling on fuel.

The MSR 2022 highlights that the situation in the global economy remained highly unstable in 2022, still, the Omani economy recorded significant growth reflecting the rebound in oil prices and the relaxation of the pandemic-related measures. Nevertheless, the relative importance of the hydrocarbon sector in the Omani economy remained high. This sector accounted for 43 percent of the real gross domestic product (GDP) growth in 2021. Furthermore, there has been substantial improvement in fiscal balance, the MSR 2022 pointed out. “The overall fiscal deficit declined as a percent of GDP, mainly due to the rise in oil and gas revenues. Accordingly, lower government’s financing needs led to a significant decrease in total public debt as a ratio to GDP during 2021 and the first half of 2022,” it added in the report. In particular, external debt was sharply reduced during this period with the government redemption/ repurchase of Eurobonds and International Sukuk.

The MSR compliments the Financial Stability Report (FSR) in affirming that the ongoing geopolitical tensions in Europe fuel inflationary pressures that are mounting across the globe. The ensuing monetary tightening may weigh on growth, especially for the sectors that are still in the recovery phase.

The CBO released the first issue of the MSR on Tuesday. The report, which will be issued annually, complements CBO publications and adds to its timely communication approach with in-depth diagnostic analyses of Oman’s macroeconomic performance.

The MSR covers a period of 18 months from January 2021 to June 2022 in providing its assessment of the recent macroeconomic developments in Oman, highlighting the strengths and potential macroeconomic vulnerabilities and risks.