Muscat – The world’s largest rating agency has upgraded Oman’s sovereign credit rating for the second time in less than a year, reflecting the improved ‘resilience’ of the sultanate’s economy to external shocks.

On Friday, S&P Global Ratings raised its long-term foreign and local currency sovereign credit ratings of Oman to ‘BB+’ from ‘BB’, thanks to the government’s broader structural reforms and a continued positive outlook for the oil sector.

Last week, Fitch Ratings also upgraded Oman’s long-term foreign-currency issuer default rating to ‘BB+’ from ‘BB’ with a stable outlook. This upgrade, the rating agency stated, is a result of Oman’s use of high oil revenues to reduce debt and extend its maturity, disciplined spending to reduce external risks, and an increase in Fitch’s oil price forecast.

S&P also affirmed Oman’s short-term ratings at ‘B’ on Friday, with the long-term ratings maintaining a stable outlook.

‘The upgrade (of the sultanate’s ratings) reflects the improved resilience of the Omani economy to external shocks, driven by continued positive prospects for the oil sector, sovereign balance sheet deleveraging and broader structural reforms,’ S&P said in a statement.

It anticipates that high oil prices will continue to support Oman’s fiscal surpluses and the government’s efforts to reduce debt. Important government reforms, such as the reorganisation of government-related entities, are also starting to yield results, improving operational efficiency and strengthening the financial profiles of these individual companies, according to S&P.

In 2022, Oman achieved a fiscal surplus of 1.8% of GDP, following eight years of occasional substantial deficits. S&P expects ongoing fiscal surpluses to be maintained, averaging 1.4% over the period until 2024, supported by growth in government revenues and expenditures averaging about 3% and 4%, respectively.

S&P anticipates that Brent oil prices will average US$83 per barrel in 2023 and US$85 in 2024 and beyond. ‘This will support the government’s efforts to use ongoing fiscal surpluses for debt repayment. We estimate that government debt will decrease to 38% of GDP in 2023, down from close to 40% in 2022,’ stated the rating agency.

Fiscal reforms continue

S&P expects Oman’s government to continue its fiscal and economic reforms momentum over 2023-2026. However, as oil prices remain high, the government has moderated some measures to support economic activity and reduce the impact of past austerity measures on the population, the rating agency noted.

‘While revenue will continue to be heavily reliant on oil and gas receipts, the Omani government has been working to reduce the budget’s dependence on these in line with its Medium-Term Fiscal Plan, which is currently being updated. We expect the government will focus on improving corporate tax administration and collection to strengthen non-hydrocarbon receipts,’ S&P said.