Fitch Ratings has affirmed Oman’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB+’ with a Stable Outlook.
“Oman’s ratings are supported by higher gross domestic product (GDP) per capita and World Bank Governance Indicators than peer group medians, the positive impact of recent budget reforms and decreasing government debt/GDP.”
“We project Oman’s budget surplus to narrow to 2.2 percent of GDP in 2024 and 0.9 percent in 2025 from 3.2 percent in 2023, assuming a Brent oil price of $80 and $70 per barrel, respectively. We estimate Oman’s fiscal breakeven Brent oil price at $65-70 per barrel.”
The international rating agency further assumes that OPEC+ will unwind production quotas from the fourth quarter of 2024, which will mitigate part of the revenue loss from lower oil prices for Oman, although overall hydrocarbon revenue will still drop by 11 percent in 2025.
“Our fiscal balance metric differs from the government, as we exclude some proceeds from asset sales, liquidity and debt management items from revenue and spending,” it added.
The rating agency said that authorities in Oman continue to improve tax enforcement while streamlining taxes and fees, resulting in moderate growth of non-oil revenue. Oman is making progress towards personal income tax, which could bring a small amount of additional revenue from 2026.
“We project non-oil revenue to reach 10.6 percent of GDP at end-2024, up from 9.7 percent in 2019. There are currently no plans to increase VAT, although the measure could be revived in a low oil prices scenario.”
On the spending side, Oman’s extension of the social safety net came into force in 2024 at a cost of 1.3 percent of GDP, with the majority of funds going to old age and child support.
This permanent increase in social transfers will be partly financed by lower spending on fuel subsidies as oil prices fall from 2025 (0.7 percent of GDP saving). The reform of electricity subsidies is slowly continuing, driven by rising technical efficiency and reorganisation of the sector.
The rating agency further said: “We project government debt/GDP will fall to 32.4 percent of GDP at end-2024 and 31.9 percent in 2025 from 36.5 percent at end-2023 and 68 percent in 2020. Oman continues to pre-pay some of its debt, using the budget surplus from high oil prices.”
“We expect Oman to have repaid nearly $2.9 billion in external debt in the first half of 2024. The resulting 10 percent drop in external debt from end-2023 is faster than our forecast at our last review in September 2023,” the agency added.
The Petroleum Reserve Fund was about $3 billion (2.6 percent of GDP) in April 2024. Oman’s debt management has smoothed the debt profile, reducing the risk of liquidity pressures. The authorities aim to gradually increase the share of domestic debt by developing the local market and refinancing part of the upcoming external debt maturities in rial.
The Fitch report further said that external debt repayments by government and state-owned entities (SOEs) have assuaged liquidity risks and Oman has returned to a positive sovereign net foreign assets position (Oman Investment Authority (OIA) foreign assets + FX reserves – government debt) in 2023 (5.4 percent of GDP), from -9 percent of GDP in 2020. “While the overall economy remains a net debtor, this highlights greater resilience of Oman’s external debt in our base case scenario of a Brent oil price of $65 per barrel in the medium term,” the report said.
SOEs have helped improve Oman’s external position, with OQ, Oman Telecommunication Company and Asyad Group significantly reducing debt in 2022 and 2023. “We project overall SOE debt to be broadly stable at about 40 percent of GDP, including 17 percent of GDP in external debt, with Energy Development Oman increasing its debt to develop its assets, while most other large SOE reduce debt and asset sales generate internal funding.”
“OIA foreign assets increased to close to $19.8 billion (18 percent of GDP). We project total net external debt will stabilise around 20 percent of GDP over 2024-26, above the ‘BB’ median of 15 percent and ‘BBB’ median of 2 percent, but materially lower than recently.”
The rating agency forecast sovereign external maturities to average $3.1 billion in 2025-2027. In addition, annual external debt payments by SOEs under the OIA’s remit will average $1.6 billion in 2025-2027. These external commitments are less burdensome than in recent years. “As oil prices fall, we expect Oman to gradually roll over a greater share of upcoming maturities. We project central bank foreign exchange reserves to continue to cover about 3.5 months of current account spending over 2024-2026, despite our projected fall in oil prices,” the agency said.
Fitch further said that growth will bounce back and projects overall GDP growth of 1.8 percent in 2024, after 1.3 percent in 2023, supported by non-oil growth of 2.7 percent in 2024, driven by greater domestic consumption, robust foreign investment, tourism and downstream hydrocarbons. Hydrocarbon GDP will contract slightly in 2024 under the effect of OPEC+ quotas. The authorities expect non-oil growth to pick up to 3.9 percent in 2025, but Fitch projects only 2.8 percent, assuming a substantial import content of additional domestic demand generated by the widening of the social benefits and more moderate growth in FDI, although risks are tilted towards faster growth. Green hydrogen projects remain in the study phase and no final investment decisions have been made.
