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S&P revises Oman’s outlook to positive on improving fiscals, reforms

The S&P Global logo is displayed on its offices in the financial district in New York City
The S&P Global logo is displayed on its offices in the financial district in New York City

PROMISING RECOVERY: Real GDP to grow by 1.7 per cent in 2021 and accelerate to 3.1 per cent on average in 2022-2023 as oil and gas production ramps up after OPEC+ production limits are eased

Adding to a succession of increasingly favourable assessments of the Omani economy, leading international credit rating agency S&P Global Ratings, on Friday, revised the outlook on the Sultanate to positive from stable.

At the same time, the New York-based agency affirmed its ‘B+/B’ long-term and short-term foreign and local currency sovereign credit ratings. The transfer and convertibility assessment was set at 'BB-'.

In upgrading its outlook for the Sultanate, S&P cited the following reasoning: “Economic and fiscal pressures on Oman are easing, as the effects of the sharp drop in oil prices in 2020 and the Covid-19 pandemic abates. We project that Oman's reform program will reduce the pace of net government debt accumulation over the next three years. We have therefore revised our outlook on Oman to positive from stable and affirmed the 'B+/B' ratings.”

It further added: “The positive outlook indicates that we consider that Oman's reform programme, and the higher oil prices relative to 2020, will narrow fiscal deficits and slow the increase in net government debt over the next three years.”

Significantly, Oman’s real GDP is expected to grow by 1.7 per cent in 2021 and then accelerate to 3.1 per cent on average in 2022-2023 on the back of rising oil and gas production once OPEC+ production curbs are relaxed, the agency said.

S&P pointed out that it could raise its ratings for the Sultanate over the next 12 months “if planned fiscal reforms and stronger economic growth sustainably reduce fiscal imbalances and the stock of net government debt beyond our current expectations”.

However, on the flip side, it noted that a downward revision to stable – from positive – was likely if it saw “risks to fiscal reform implementation that could reduce the government's ability to maintain sustainable public finances”.

Likewise, a downward movement could also be triggered if “external debt issuances by government-related enterprises (GREs) increased the country's external debt metrics more than we currently expect”, it stated.

The positive outlook by S&P comes on the heels of an equally upbeat assessment provided by the International Monetary Fund (IMF) last month.

In a statement following its Article IV Consultation for 2021, the world body said the Omani economy has been tracked for recovery by a combination of fiscal reforms and other measures instituted by the Omani government.

“The economy is set to recover in 2021, with non-hydrocarbon GDP growth of 1.5 per cent as vaccine rollout gradually restores domestic activity along with the recovery of external demand,” the IMF said.

“The fiscal deficit and government debt rose sharply in 2020 but are projected to improve considerably over the medium term with the implementation of the authorities’ Medium-Term Fiscal Balance Plan (MTFP),” it further noted.

In revising its outlook for Oman, S&P Global Ratings cited the “solid path” charted by the government to reduce historically high fiscal deficits, and backed by a “strong political will” to implement reform measures.

The agency noted that while “some slippages” are anticipated in the achievement of the key targets set out in the government’s 2021 – 2025 MTFP, the overall strategy is expected to produce a net positive outcome.

“...if the government fully implements its reform programme and oil prices turn more favourable than we had assumed, the pace of increase in net debt could slow significantly below our current forecast of slightly above 5 per cent of GDP on average over 2021-2024,” S&P stated.

These projects, it explained, are based on oil price assumptions of an average of $60 per barrel in 2021 and 2022 and $55/barrel from 2023, up from $42/barrel in 2020.

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