Fitch Ratings has updated the outlook for the Sultanate of Oman from stable to positive, while reaffirming the country’s credit rating at ‘BB+’. This change is linked to the ongoing decrease in debt held by the government and state-owned enterprises (SOEs), a solid track record of fiscal responsibility, and the build-up of net sovereign foreign assets.
Budget surplus projections
The agency anticipates that Oman’s budget will yield a surplus of 2 percent of GDP in the current year (2024), with expectations of a reduction in this surplus to 0.7 percent in 2025, before shifting to a slight deficit of 0.2 percent in 2026. These projections are based on assumptions of Brent oil prices averaging $70 per barrel in 2025 and $65 in 2026. Fitch estimates that Oman’s fiscal breakeven Brent oil price lies within the range of $67-70 per barrel.
Read more | Understanding Oman’s GDP: Trends, growth, and future outlook
Non-oil primary balance improvement
Moreover, Fitch expects Oman’s non-oil primary balance to see gradual improvement, driven by moderated spending and enhanced tax collection efforts. The agency estimates the non-oil primary deficit as a percentage of non-oil GDP will decrease to 27 percent in 2024, down from 43 percent in 2020, and is forecasted to approach 24 percent by 2026.
GDP growth expectations
Additionally, overall GDP growth is projected to be 1.8 percent in 2024, an increase from 1.2 percent in 2023, boosted by non-oil growth of 3.7 percent. Continued domestic consumption, strong foreign investment, and tourism are expected to keep non-oil growth above 3 percent in both 2025 and 2026.
Government debt outlook
Fitch further predicts that the government debt-to-GDP ratio will decline to 34 percent by the end of 2024 and 33.3 percent by 2026, down from 37.5 percent at the end of 2023 and 68 percent in 2020. The agency also foresees Oman reducing its external debt by nearly $2.8 billion in 2024, bringing it to $26.6 billion (24 percent of GDP).
Strengthened foreign assets
The repayments of external debt by the government and SOEs have mitigated liquidity risks, and Oman’s sovereign net foreign assets (calculated as foreign assets plus FX reserves minus government debt) are projected to improve to nearly 10 percent of GDP in 2024, recovering from -9 percent of GDP in 2020.
Potential credit rating upgrades
Fitch has indicated that the credit rating for the Sultanate of Oman could be upgraded if the country continues to uphold a prudent fiscal policy, marked by a reduction in the government debt-to-GDP ratio, growth in non-oil revenues, and reinforced external buffers.
Government development bonds issuance
In a related announcement, last month the Central Bank of Oman (CBO) revealed plans to issue government development bonds on behalf of the Sultanate’s Ministry of Finance (MOF). This new issuance amounts to OMR75 million ($194.83 million), with an option for greenshoe. The bonds will have a maturity of five years and a coupon rate set at 4.75 percent.
According to the central bank, the subscription period for this issuance will be open from October 27 to 31, with the auction scheduled for November 3. The official issue date is November 5, and the central bank will disburse interest on these bonds semiannually on May 5 and November 5 until their maturity on November 5, 2029.
The CBO is making the 72nd issuance of government development bonds available to all investors, both residents and non-residents, regardless of nationality. Investors are required to apply through a competitive bidding process, submitting their bids via commercial banks operating in Oman during the subscription window.
Furthermore, investors with applications exceeding OMR1 million may choose to submit their bids directly to the central bank, provided they have their bank’s endorsement.
