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Moody’s upgrades outlook on Oman

16 Oct 2021 By GULAM ALI KHAN

Muscat – Two weeks after S&P Global Ratings upgraded its outlook on Oman to ‘positive’ from ‘stable’, another global ratings agency Moody’s has revised up its outlook on the sultanate.

Moody’s Investors Service has changed the outlook on the Government of Oman’s issuer rating to ‘stable’ from ‘negative’ and affirmed its long-term issuer and senior unsecured ratings at ‘Ba3’ for Oman.

‘The upgrade of outlook to stable reflects the significant easing of government liquidity and external financing pressures, mainly as a result of significantly higher oil prices since mid-2020, and Moody’s expectation that oil prices will average above US$60 a barrel during the next several years, increasing the likelihood that these pressures will remain contained,’ the ratings agency said.

S&P, the world’s biggest credit rating agency, on October 1 upgraded its outlook on Oman to positive as it now believes that the sultanate’s reforms programme and higher oil prices will narrow fiscal deficits and slow the increase in government debt. S&P also affirmed the sultanate’s ‘B+/B’ long- and short-term foreign and local currency sovereign credit ratings.

In Moody’s baseline scenario, higher oil prices and ongoing implementation of Oman’s Medium-Term Fiscal Plan will also underpin a steady decline in direct government debt burden to the pre-pandemic level, restoring some of the lost fiscal space before the next shock.

Moody’s estimates that higher oil prices will result in a sharp reduction in fiscal deficit to less than two per cent of GDP in 2021 from 18 per cent of GDP in 2020. A narrower fiscal deficit and a rebound in nominal GDP, the ratings agency said, will drive the reduction in the government’s direct debt burden to around 67 per cent of GDP in 2021 from nearly 80 per cent of GDP in 2020.

Moreover, in Moody’s baseline scenario, Oman’s debt burden could decline back to the pre-coronavirus level of around 60 per cent of GDP by 2024.

Similarly, S&P also estimated a material reduction in Oman’s fiscal deficit to 4.2 per cent of GDP in 2021, from 15.3 per cent of GDP in 2020.

Moody’s, however, warned that Oman will remain heavily exposed to declines in oil demand and prices. It estimates that in 2021 the hydrocarbon sector will account for around 40 per cent of GDP, around 73 per cent of government revenue, and 64 per cent of total exports of goods and services.

This reliance is further exacerbated by Oman’s high fiscal and external breakeven oil prices, which Moody’s estimates at around US$71 per barrel in 2021.

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