The Oman government, in its budget document for 2017, projected a gross domestic product (GDP) expansion of two per cent on the back of expected improvements in oil prices. It pegged growth in non-oil activities at 4.7 per cent.
In its 'Middle East and North Africa Sovereign Rating Trends 2017' report released on Wednesday, the global ratings agency said it forecasts Oman's GDP growth at 1.5 per cent for 2017 and 1.7 per cent for 2018, before picking up to 2.1 per cent in 2019.
S&P maintained its outlook for the sultanate at 'negative', which was revised in November last year from 'stable'. “The negative outlook reflects that Oman's fiscal consolidation might take longer than we expect. We meanwhile assume that government financing needs will largely be funded externally due to its narrow domestic capital markets.”
As a result, S&P said, the economy's external debt could exceed its liquid external assets by more than it anticipates, thereby limiting buffers to offset external pressures.
Oman's 2017 budget estimates a deficit of RO3bn this year. Around RO2.5bn of the projected deficit will be financed by external and domestic borrowing, while the rest will be covered by drawing on reserves, the government announced.
S&P expects economic growth in all the GCC countries to remain weak in 2017. It expects average GCC GDP growth to slow to about two per cent in 2016 (compared with closer to four per cent in 2015) and to remain around these relatively weak growth rates in 2017. Available data for 2016, according to S&P, shows a weakening trend in GCC economic activity, reflecting the impact of low oil prices and the resulting fiscal consolidation and reduced banking sector liquidity.
“Governments across the region implemented expenditure cuts and subsidy reforms which have weakened both corporate and household activity, while reduced hydrocarbon deposits in regional banking systems and government domestic borrowings have increased interbank rates and squeezed banking sector liquidity,” it said.
S&P said economic activity in oil & gas sector was weak across most of the GCC, adding, “absent a sharp increase in oil prices – which is not our base case – we expect further weakness in the hydrocarbons sector over 2017.”
Non-hydrocarbon growth, it said, has also slowed in most GCC countries and expects further fiscal consolidation measures by individual governments to curtail household and corporate spending in 2017.
S&P warned it could consider lowering Oman's ratings “if the country's external position deteriorated more quickly than we currently forecasts, perhaps through wider fiscal deficits than we expect.”
The ratings agency further said it could also lower ratings if Oman's debt-financing risks rose significantly through a combination of substantially higher interest costs as a proportion of revenues and a sharp increase in share of foreign currency and non-resident holdings of total government debt.