Muscat – Oman’s 2024 budget, released in early January, indicates that the authorities will continue to pay down government debt, strengthening the sovereign’s resilience to potential shocks, but increasing social spending will slow the pace of debt reduction in 2024, Fitch Ratings said.
In a statement, the rating agency noted, ‘Fitch’s treatment of certain budget items differs from that of the authorities, but the official figures suggest the fiscal surplus may be slightly larger than our previous projections in 2023 and slightly smaller in 2024.’
Fitch now predicts the surplus to decrease to 1.8% of GDP in 2024, down from an estimated 3.3% in 2023, based on the budget data and the rating agency’s latest oil price assumptions. In its December sovereign data comparator, Fitch had previously forecasted the surplus to remain relatively stable at 2.1% of GDP in 2024, compared to 2.2% in 2023.
‘The overall impact on Oman’s credit metrics should align with the assumptions we made when we upgraded the sovereign’s long-term foreign-currency issuer default rating to ‘BB+’ from ‘BB,’ with a stable outlook, in September 2023,’ Fitch said.
Fitch attributes the smaller surplus in 2024 to a projected 1% decline in Oman’s oil output, consistent with the recent reduction of the country’s OPEC+ production quota, along with a modest weakening in international oil prices, impacting revenues.
The budget anticipates non-oil revenue growth driven by stronger economic activity, with ‘no significant new revenue-raising measures being announced.’ Fitch highlighted the government’s plans to expand the social safety net, adding about 1% of GDP to spending.
It said, ‘Fuel subsidy costs are expected to remain significant at about 0.7% of GDP in 2024, with an expectation that the government would eliminate the subsidy if global energy prices decline. The authorities also intend to maintain public capital expenditure broadly stable in 2024.’
Fitch anticipates prudent spending in Oman for 2024, with key current expenditure items generally growing in line with nominal GDP.
‘The budget shows no indication of significant backtracking on recent fiscal consolidation measures, and we expect further modest progress on electricity price reform. Meanwhile, public finances will benefit from slightly lower debt service costs in 2024 following liability management operations conducted by the government since 2022,’ affirmed the rating agency.
Oman’s government plans to utilise part of the surplus to continue debt repayment. Fitch notes that Oman’s utilisation of the revenue windfall from high oil prices to reduce debt and extend maturities influenced the decision to upgrade its ratings in September.
However, Fitch expects the pace of debt reduction to ease in 2024, with the government debt-to-GDP ratio projected to decrease to around 33% in 2024 from 36% in 2023. This slowdown is attributed not only to the smaller surplus but also to the authorities’ plans to allocate some of the surplus to the Oman Future Fund to support economic development.
The rating agency emphasised that Oman’s public finances will remain vulnerable to global oil price shocks, although less so than before the Covid-19 pandemic.
‘External debt maturities remain significant at $6bn per year for the government and state-owned enterprises combined, although less burdensome than in recent years,’ added Fitch.
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