Oman’s Long-Term Foreign-Currency Issuer Default Rating to ‘BB+’ from ‘BB’ Fitch Ratings upgrade reflects the use of high oil revenues to pay down debt and spread its maturity.
Fitch projects general government debt to fall to 36 percent of GDP in 2023 and stabilize at around 35 percent in 2024 and 2025. This is below its forecast of 45 percent of GDP in 2023 following the August 2022 update.
Oman has set a fiscal breakeven price to below $70 per barrel of oil, which significantly reduced vulnerability to oil price swings, although risks remain, according to Fitch. Fitch projects oil production to plateau from 2025 at 1.08 million bpd.
Read: Lower oil related activities culprit behind Oman Q2, H1, GDP drop
Falling Debt
Fitch projects debt to decrease by about 8 percent in nominal value in 2023. The Petroleum Reserve Fund was left unused for these repayments and was over $2.5 billion in August 2023.
Lower external debt has eased external liquidity risks, but debt repayments prevented accumulation of foreign assets.
Fitch projects sovereign net foreign assets + FX reserves to return to a positive position in 2023, after falling to -9 percent of GDP in 2020.
State-owned entities (SOE) have also contributed to the improvement of Oman’s external position with overall SOE debt to be broadly stable at about 40 percent of GDP, including 17 percent of GDP in external debt.
Fitch projects a government budget surplus of 4.1 percent of GDP in 2023, 2.4 percent in 2024 and 1 percent in 2025, narrowing in line with our Brent crude price forecasts of $80 in 2023, $75 in 2024 and $70 in 2025.
Other measures
The authorities are likely to focus on qualitative measures to improve tax collection for VAT rather than raise rates while the budget remains in surplus, but personal income tax could be introduced in 2025.
From 2024, the government will make a higher social security premium contribution, which will increase spending by about 1 percent of GDP.
From 2025, Oman could benefit from large scale investments in the green hydrogen sector. Investment agreements of over $20 billion have been signed.
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