MUSCAT: A succession of positive rating actions on Oman’s sovereign debt, issue by the world’s Top 3 credit rating agencies over the course of 2022 and 2023, is attributable in significant part to fiscal reforms and other far-reaching measures by the Omani government to stabilize the country’s finances, according to the Central Bank of Oman (CBO).
The apex bank noted in its newly issued ‘Macroeconomic Stability Report 2023’ that the sovereign upgrades reflected a substantial scaling down of perceived systemic risks accruing in previous years corresponding to the back-to-back global economic downturn and pandemic.
“These sovereign rating upgrades represent a testament to the notable enhancements in Oman’s fiscal and external balances and other macroeconomic metrics, primarily driven by the substantial rise in oil prices and the consistent commitment to the Medium Term Fiscal Plan (MTFP),” the Central Bank said in the report.
CBO Executive President Taher Salim al Amri added in a foreword: “Sovereign rating upgrades during the year (2022) reflected a decrease in perceived systemic risks, marking a testament to the resilience and stability of our economic foundations.”
The flurry of upgrades began in 2022 with US credit rating agency S&P Global Ratings initiating three ratings upgrades of Oman’s sovereign debt by three notches, from B+ to BB+ with a stable outlook between April 2022 and September. It was the first since January 2007, since February 2010 by Moody’s, and the first ever by Fitch since the beginning of its coverage of Oman’s sovereign debt in January 2017.
Moody’s followed suit with a change in its outlook for Oman’s sovereign debt in October 2022 from “stable” to “positive”, followed by two rating upgrades in May and December 2023 that elevated Oman’s sovereign rating by two notches from “Ba3” to “Ba1”, with a “stable” outlook, in December 2023.
In the same vein, Fitch upgraded Oman’s sovereign rating twice in August 2022 and September 2023, with change in outlook from “stable” to “positive” in April 2023, elevating its rating by two notches from “BB-“ to “BB+”, with a “stable” outlook as of September 2023.
The sovereign rating upgrades, however, came after a succession of downgrades, witnessed during the 2015 – 2020 timeframe, which elevated Oman’s perceived country risk, according to the CBO. It noted that the lowering of the perceived country risk in the wake of the more recent upgrades are reflected in the spreads of Omani Eurobonds relative to comparable US treasury securities in the global financial markets.
In this context, the Central Bank also sought the highlight the important role of buoyant oil prices in helping Oman earn the latest rating upgrades, warning that any sharp decline in oil prices could potentially reverse these gains.
Stressing the need for sustaining fiscal prudence, it said: “The rise in oil prices since 2021, and the expectations that oil prices will remain sufficiently high over the medium term, has played a predominant role in these positive rating actions. A sharp drop, or even a gradual downward trend, in oil prices could reverse those expectations and therefore result in sovereign rating downgrades.
Over the long term, maintaining sustainable fiscal discipline and undertaking a significant restructuring of Oman’s economy away from its heavy reliance on the hydrocarbon sector, in alignment with the Oman Vision 2040, are pivotal to avoiding any potential rating downgrades,” the Central Bank further added.
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