Institutional changes in Oman smooth succession
S&P Global Ratings said today that the institutional reforms announced in Oman should improve political stability in the country and the predictability of succession.
On Jan. 12, Sultan Haitham bin Tariq al-Said announced several constitutional changes, including the introduction of the position of crown prince and a new committee under the sultan to evaluate the performance of ministers and other officials. We expect Sultan Haitham’s eldest son Sayyid Dhi Yazin bin Haitham, Minister of Culture, Sports and Youth, will be the crown prince and next in line to be Oman’s ruler.
Sultan Haitham succeeded Sultan Qaboos bin Said al-Said, who had ruled Oman for nearly 50 years and passed away on Jan 10, 2020. While the succession was ultimately smooth, the process resulted in some uncertainty regarding who would be selected as ruler. Until now, the decision on who would become sultan required consensus by the Ruling Family Council or, failing that, a sealed letter containing the sultan’s choice of successor would be opened and adhered to. When Sultan Qaboos died, the royal family decided to immediately open the letter revealing the chosen successor. We believe therefore that the introduction of the role of crown prince should improve visibility and reduce succession risks.
These recent measures follow other political and fiscal reforms implemented in 2020 and early 2021 that aim to decentralize decision-making to some extent, improve governance of public enterprises, and address large fiscal deficits. The measures include the sultan renouncing his official titles of finance and foreign minister and central bank governor, shrinking the number of ministries, consolidating sovereign wealth funds, and transferring all government related entities (GREs; except Petroleum Development Oman [PDO]) to under the newly established Oman Investment Authority, and PDO from the government’s balance sheet to new oil company Energy Development Oman. In addition, the government recently released its 10th five-year plan (2021-2025), which envisions a small fiscal surplus by 2025. The government will introduce a value-added tax of 5% from April 2021, and plans to rationalize current and investment spending over the period through 2025. In our view, fiscal austerity measures will be introduced gradually to maintain socioeconomic stability.
Our institutional assessment for Oman of ‘4’ (with ‘1’ being the strongest and ‘6’ being the weakest) captures moderate risk of challenges to political institutions because of still broadly centralized decision-making and socioeconomic pressures, some shortcomings in data dissemination in terms of public availability and timeliness, and geopolitical risks. We do not expect to improve this assessment, which is in line with other Gulf Cooperation Council countries except Bahrain (where our institutional assessment is ‘5’).
Oman faces significant structural challenges including high fiscal and external deficits, subdued economic growth, and high youth unemployment, all exacerbated by the COVID-19 pandemic and a sharp drop in oil prices in 2020.
This report does not constitute a rating action.