Oman slated for budget surplus of 3.5% of GDP in 2022

@conradprabhu -

Bolstered by triple digit oil prices, the Sultanate of Oman is on course to achieving a budget surplus equivalent to 3.5 per cent of its gross domestic product (GDP) at the end of 2022, versus a deficit of 4 per cent in 2021, according to prominent international ratings agency Capital Intelligence Ratings (CI).

Citing the country’s brightening fiscals, the Limassol-Greece based ratings agency also revised the Outlook on the Sultanate of Oman’s Long-Term Foreign Currency Rating (LT FCR) and Long-Term Local Currency Rating (LT LCR) to Stable from Negative. The sovereign's LT FCR and LT LCR have been affirmed at 'BB'. On the other hand, the Short-Term Foreign Currency Rating (ST FCR) and Short-Term Local Currency Rating (ST LCR) were affirmed at 'B'.

The ratings upgrade is the latest by international credit ratings agencies and follows on the heels of positive outlook revisions by the world’s dominant ratings agencies Standard & Poor’s, Moody’s and Fitch.

“The revision of the outlook reflects the ongoing strengthening of fiscal and external balances as well as improving government debt metrics – developments which are largely driven by the direct and indirect impact of higher hydrocarbon prices,” said Capital Intelligence in its latest report issued earlier this week.

It added that the revised ratings are supported by the country’s “moderate fiscal and external buffers, relatively sound banking system”, and other factors.

Prices of Oman crude have scaled highs last seen in 2008 – a trend that is likely to be maintained for foreseeable future. Notably, Capital Intelligence has forecast Oman oil prices to average $105 per barrel for the duration of 2022 – 2023 – a level that augurs well for the country’s strong fiscal performance.

This positive uptrend in energy prices has also buoyed Oman’s external position over the past year, CI points out. It has shrunk the current account deficit to 2.7 per cent of GDP in 2021, down from 13.7 per cent in 2020.

“This trend is expected to continue going forward, with the current account forecast to post surpluses averaging 1.3 per cent of GDP in 2022-23,” the agency said.

Buoyant oil prices have had a ripple effect across other facets of the monetary sector. Foreign currency reserves held by the Central Bank of Oman (CBO) soared to $19.7bn in December 2021, compared to $15.0bn a year earlier.

Reserve adequacy is good, with official reserves providing approximately 100 per cent coverage of external debt falling due in 2021 and 37.6 per cent of broad money (M2), it said.

Importantly, public debt is projected to decline to 63.1 per cent of GDP in 2022, down from 68.2 per cent in 2021, according to Capital Intelligence.

It noted that Oman’s post-pandemic recovery will be sustained, but gradual. “Real GDP is forecast to have expanded by 2.7 per cent in 2021 and is projected to increase by an average of 3 per cent in 2022-23. Oman’s current growth outlook benefits from recovering external demand for oil and key manufacturing goods (e.g. plastics, chemicals, base metals),” the ratings agency stated.

Travel and tourism – a key sector for the Omani economy – is also projected to recover, albeit in a much more gradual manner, said Capital Intelligence. Likewise, domestic demand is expected to remain subdued over the next two years due to sluggish private sector credit growth, it added.