Oman saw its credit rating outlook upgraded from stable to positive by Moody’s Investors Service, the latest sign of how the economies of Gulf oil producers are benefiting from high crude prices.
Oman is part of the 23-member OPEC+ group that agreed on October 5 to cut oil production by 2 million barrels per day (bpd), in a bid to keep crude prices high.
Oman’s government has taken advantage of the recent oil price spike to repair its balance sheet and restore the fiscal space it lost during the Covid-19 pandemic. It has paid off a net amount of $6.5 billion in debt since the start of the year.
Moody’s said the change in outlook on the sovereign’s Ba3 rating reflected the improvement in its debt position. He now expects public debt to fall to less than 45% of GDP by the end of the year, from 63% of GDP in 2021.
High oil revenues since 2020 have also lifted Oman out of a prolonged period of budget deficits, which averaged 9.6% of GDP over 2014-21. Moody’s estimates that authorities in Muscat will be able to post a surplus of nearly 6% of GDP this year, assuming the price of oil averages $105 a barrel for the full year.
The prospect of high oil prices over the next few years also means that there is a greater chance that the authorities will be able to pursue fiscal and economic reforms that could put the economy in better shape to weather the outlook. a post-oil crisis. world.
However, it may be politically difficult to introduce some changes if government finances are sound, including a planned income tax for high earners. The tax was originally scheduled for 2023, but is now unlikely to come before 2024.
Such concerns may have informed Moody’s warning that “Oman’s structural vulnerability to potential future declines in demand and oil prices remains very high.” Moody’s estimates that the hydrocarbons sector will account for more than 40% of GDP this year, more than 80% of government revenue and 66% of total exports.
Moody’s latest move follows an upgrade to Oman by Fitch Ratings in mid-August, when it raised the rating from BB- to BB. In April, Standard & Poor’s upgraded Oman from B+ to BB-.
However, a more cautious note was issued by the International Monetary Fund in its latest report on Oman, released the day before Moody’s announcement. While highlighting the benefits of the oil windfall, the IMF also said that “uncertainties continue to cloud the outlook, with downside risks, especially from global sources, dominating in the near term.”