Muscat – Global credit rating agency, Moody’s Investors Service, has upgraded the outlook on Oman’s issuer rating to ‘positive’ from ‘stable’ and affirmed its long-term issuer and senior unsecured ratings at ‘Ba3’.

Moody’s also affirmed the government of Oman’s (P)Ba3 senior unsecured medium-term note program rating.

The change of outlook to ‘positive’ reflects the strengthening of Oman’s debt burden and debt affordability metrics during 2022, mainly as a result of elevated oil prices and the prospect that this improvement could be sustained in the medium-term, Moody’s said in a statement.

‘Oman’s balance sheet repair that has already taken place this year restores the fiscal space that the sovereign had lost during 2020. Meanwhile, the prospect that oil prices remain elevated for the next few years affords the government additional time to advance its fiscal and economic reform agenda,’ Moody’s said.

The affirmation of the ‘Ba3’ ratings reflects Moody’s view that, despite the fiscal and current account improvements since 2020, Oman’s structural vulnerability to potential future declines in oil demand and prices remain very high, exposing the sovereign to reversals of the improvements in government debt and debt affordability metrics.

Moody’s rating action also applies to Oman Sovereign Sukuk SAOC, a special-purpose vehicle domiciled in Oman, whose obligations, in Moody’s view, are ultimately the obligation of the government of Oman. The entity’s backed senior unsecured ratings and its backed senior unsecured medium-term note program rating were affirmed at Ba3 and (P)Ba3, respectively.

A surge in oil prices, Moody’s said, has generated a large revenue windfall for Oman, turning its large fiscal deficits in the past, averaging 9.6 per cent of GDP during 2014-21, into a material surplus.

Based on the assumption that oil prices average US$105 a barrel in 2022, Moody’s estimates that Oman’s full-year fiscal surplus will be close to 6 per cent of GDP this year, offering the government an opportunity to reverse some of the balance sheet deterioration it has sustained since 2015.

Moody’s forecasts that Oman’s government debt will decline to less than 45 per cent of GDP by the end of this year from 63 per cent of GDP in 2021. This reduction in the debt burden is below the level at the end of 2019 (52 per cent of GDP), more than fully reversing Oman’s loss of fiscal space sustained during 2020 and increasing the sovereign’s resilience ahead of the potential next oil price shock.

Although Moody’s expects oil prices to remain volatile and eventually decline to US$50-US$70 per barrel in the medium term, the agency’s near-term assumption is that the geopolitical risk premium due to the military conflict in Ukraine will keep oil prices elevated during the next two years, staying above the medium-term fundamental range well into 2024.