Oman has noted that its credit rating outlook improved from solid to positive through Moody’s Investors Service, the latest sign of how Gulf oil-producing economies are reaping benefits from high crude prices.
Oman is part of the 23-member OPEC organization that agreed on Oct. 5 to cut oil production by 2 million barrels per day (b/d) in a bid to keep crude costs high.
Oman’s government has used the recent rise in oil costs to fix its balance sheet and fix the fiscal area it lost to the Covid-19 pandemic. It has paid off a net amount of $6. 5 billion in debt since the beginning of the year.
Moody’s said the updated outlook for the sovereign’s Ba3 score represents an improvement in its debt position. It 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 led Oman to emerge from a prolonged and steady period of fiscal deficit, which averaged 9. 6% of GDP over the constant period of 2014-21. Moody’s estimates that the Muscat government will post a surplus of about 6%. of GDP this year, assuming oil costs average $105 consistent with a barrel for the full year.
The prospect of high oil costs in the coming years also means that the government is more likely to pursue fiscal and economic reforms that simply put the economy in better shape to cope with customers in a post-oil crisis world.
However, it can be politically complicated to introduce some adjustments if government finances are sound, adding a planned source of income taxes for the main source of revenue. The tax originally planned for 2023, but is now unlikely to take position before 2024.
Such considerations would likely have informed Moody’s warning that “Oman’s structural vulnerability to potential long-term declines in oil demand and costs remains very high. “Moody’s estimates that the hydrocarbon sector will account for more than 40% of GDP this year, more than % of government profits and 66% of total exports.
Moody’s latest move follows an update to Oman’s score via Fitch Ratings in mid-August, when it upgraded the score from BB- to BB. In April, Standard
However, a more cautious note issued through the International Monetary Fund in its most recent report on Oman, published the day before Moody’s announcement. While highlighting the benefits of oil windfalls, the IMF also said that “uncertainties continue to cloud the outlook, with problematic risks, adding from global sources, dominating in the near term. “