Muscat – S&P Global Ratings last week affirmed Oman’s investment-grade credit rating at BBB- with a stable outlook. The agency attributed the rating to the continued improvement in the sultanate’s public finance performance and growing expenditure-side flexibility, along with ongoing government efforts to reduce public debt and enhance the governance of state-owned enterprises (SOEs).

S&P noted that over the past four years, the Omani government has strengthened its balance sheet by paying down debt and restructuring SOEs. As a result, gross government debt has declined to 36% of GDP in 2024, down from 62% in 2021.

The ratings agency expects the Omani government to continue its deleveraging efforts and further reduce sovereign debt levels. It forecasts Oman’s budget surplus will average just under 1.5% of GDP between 2025 and 2028, compared to 2.2% in 2024. This largely reflects S&P’s Brent oil assumption of $70 per barrel over the next couple of years, relative to $81 in 2024, coupled with a moderate increase in production, as government revenue remains concentrated in oil and gas receipts (at about 72% of total revenue).

However, S&P cautioned that Oman’s fiscal position still remains dependent on oil market developments, although expenditure-side flexibility is increasing. The agency expects oil production to remain flat in 2025, before rising by 2%–3% annually as OPEC+ quotas are eased.

According to S&P, its stable outlook on Oman reflects a balance between the potential benefits of the government’s fiscal and economic reform agenda and the economy’s structural vulnerability to adverse oil price shocks.

The agency said it could upgrade Oman’s ratings within the next two years if reforms lead to sustained growth in GDP per capita, supported by continued momentum in non-oil economic activity.

‘Measures to strengthen institutions – such as those supporting economic diversification and the development of domestic capital markets – could be credit positive,’ it added.

Conversely, S&P could lower the ratings if the pace of fiscal and economic reforms slows, or if an unfavourable external environment, such as a terms-of-trade shock, leads to fiscal deficits and debt levels significantly exceeding current projections.

S&P noted that continued fiscal discipline, combined with efforts to diversify and modernise Oman’s economic structure, underpins the country’s credit profile.

‘In our view, Oman’s government will continue to enact key legislation and work to gradually reduce its role in the economy – from owner to regulator – through asset sales aimed at developing the non-hydrocarbon private sector and attracting foreign direct investment,’ the agency said.

S&P projects Oman will post current account surpluses of 1.3% of GDP on average during the period between 2025-2028. It said, ‘The sultanate has historically mitigated sizable deficits on its transfer, income, and services balances through surpluses on its trade balance. However, volatility in terms-of-trade remains high (because oil constitutes 60% of total exports), with Oman having posted current account deficits of up to 17% of GDP during periods of low oil prices.’

As per S&P’s estimates, Oman’s gross foreign exchange reserves stabilised at about $18bn as of year-end 2024, owing to lower government foreign currency debt issuance and external debt repayments. The agency’s base-case scenario assumes reserves will remain near this level over our forecast horizon to 2028.