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Oman may achieve fiscal surplus again in 2023: Moody’s

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International ratings agency Moody’s said in a report on Wednesday that the Sultanate of Oman is likely to achieve a fiscal surplus again this year, if the oil prices remain at an average of $90-95 per barrel in 2023.

In the report, Moody’s stated that Oman’s government debt metrics will likely continue to improve, especially if the newly established Integrated Gas Company decides to fund (some of) its spending through own borrowing rather than by reducing natural gas revenue transferred to the government’s budget.

The Integrated Gas Company, created on December 29, 2022, is state-owned company that will manage all allocations, assets, rights and obligations for the purchase, sale, import, export and transportation of natural gas and related products on behalf of the government of the Sultanate of Oman.

However, the ratings agency cautioned that the shifting gas-related expenditure to another government entity, which will retain some of the gas revenue in return, will not improve the Oman’s fiscal balance.

“We estimate that with an average oil price below $80/barrel, Oman’s budget will likely slip into a deficit and the improvements in the government’s debt and debt affordability metrics, achieved in 2021-22, will begin to gradually erode,” it added.

The fiscal upgrade in 2022 was due to a windfall from increased oil prices, which will make last year’s fiscal improvement difficult to sustain. With oil prices having already declined below $80 per barrel since the start of the year from an average of around $100 per barrel in 2022 and the peak of $120 per barrel last June.

Sound fiscal policy reforms implemented during the past two years, coupled with the surging oil price enabled the government of Oman to reduce its direct debt burden below the pre-coronavirus level, the report noted.

Based on the estimates, the Sultanate of Oman in 2022 achieved its first fiscal surplus of $2.98 billion in nearly ten years, which is credit positive.

In addition to benefitting from a strong positive denominator effect on its debt-to-GDP and debt-to-revenue ratios, the government used a part of its 2022 surplus to pay some of its outstanding debt early.

As a result, the government debt burden came down to about 44% of GDP in 2022, helped by higher nominal GDP and increased revenues due to higher oil prices, Moody’s said.

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