S&P Global Ratings has revised its outlook on Oman to positive from stable, citing a strengthening government balance sheet and economic reform. Moreover, it affirmed Oman’s ‘BB+/B’ long- and short-term foreign and local currency sovereign credit ratings.
S&P’s positive outlook hinges on the prospects that the government’s balance sheet will strengthen and the economic reform program could lead to faster-than-expected deleveraging in many state-owned enterprises in Oman without dampening economic growth outcomes. This would strengthen the economy’s resilience to adverse oil price shocks.
Economic growth
S&P Global expects Oman’s fiscal and economic reform momentum to continue from 2024 to 2027. Moreover, it expects the country’s gross domestic product (GDP) to grow by around 2 percent annually during the same period. However, due to high oil prices, S&P expects Oman to moderate some measures including tax exemptions and subsidies. Oman also reduced work visa fees to encourage growth in the private sector.
S&P also expects OPEC+-related oil production cuts to keep Oman’s economic growth low at about 1.4 percent in 2024. Moreover, it expects the non-oil economy to grow by about 2 percent. The agency also reveals that credit conditions have remained accommodative. Therefore, credit to the private sector should support Oman’s non-oil sector growth this year.
Budget surplus
Oman achieved twin surpluses in 2022 and 2023, following seven years of substantial budget and current account deficits. In the next three years, S&P expects Oman’s government budget surpluses to average about 1.2 percent of GDP. The agency expects government reforms and favorable oil prices to support that growth. While government revenues highly rely on oil and gas, Oman has continued its efforts to reduce that reliance in its medium-term fiscal plan.
S&P expects Oman to be in a small net general government asset position by 2025 with a decline in gross government debt to 31 percent of GDP by 2027. Moreover, it estimates government liquid assets to remain unchanged at 33 percent of GDP by 2027.
When it comes to monetary policy flexibility, S&P states that it is limited due to the rial being pegged to the U.S. dollar. This peg should continue to be supported by Oman’s high foreign currency reserves and government external assets.
S&P forecasts a moderation in Oman’s inflation at around 1.5 percent between 2024 and 2027 after hitting its highest in 10 years in 2022.
Read: Abu Dhabi’s non-oil GDP grows 9.1 percent in 2023
Future outlook
Favorable oil sector dynamics, higher non-hydrocarbon output, and the performance of key sectors such as tourism, transportation and utilities should sustain Oman’s real economic growth in the next two years. S&P also states that Oman’s banks have a high exposure to government-related entities. Meanwhile, the economic dependence on oil remains a concern to the banking sector’s performance. However, the Central Bank of Oman is an early adopter of international regulations. Moreover, it has previously taken proactive and corrective measures to reduce banks’ vulnerability to financial crises. Moreover, Oman’s banks benefit from a stable core deposit base, with limited reliance on external funding.
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