New York, US – Moody’s Ratings (Moody’s) has upgraded Oman’s long-term issuer and long-term senior unsecured ratings to Baa3 from Ba1 and changed the outlook to stable from positive.

‘We have also upgraded the Government of Oman’s senior unsecured medium-term note programme rating to (P)Baa3 from (P)Ba1,’ Moody’s stated.

The upgrade reflects the group’s expectation that Oman’s government debt metrics will remain robust even if oil prices moderate below our medium-term assumption of US$65/barrel in the coming years. The recent years’ significant reduction in debt burden together with the cumulative impact of spending restraint increase Oman’s resilience to potential future declines in oil demand and prices.

Stronger debt metrics also afford the government more fiscal space and time to implement structural reforms that could, over time, reduce the sovereign’s still-heavy economic and fiscal reliance on the hydrocarbon sector and potentially support a higher rating.

The stable outlook balances fiscal risks under alternative oil price scenarios. The upside risks stem primarily from regional geopolitical tensions, that could drive oil prices higher than our medium-term assumptions, without affecting Oman’s ability to export.

Conversely, the downside risks include the possibility that global carbon transition accelerates more than we currently assume, leading to weaker hydrocarbon revenue streams in the medium term compared to our baseline.

Significantly and durably lower hydrocarbon revenues could reverse the past few years’ improvements in Oman’s fiscal strength if not met with similarly significant new fiscal consolidation measures.

‘Today’s (Thursday’s) rating action also applies to Oman Sovereign Sukuk S.A.O.C, a special-purpose vehicle domiciled in Oman, whose obligations, in our 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 programme rating were upgraded to Baa3 from Ba1 and to (P)Baa3 from (P)Ba1, respectively. The outlook has been changed to stable from positive, Moody’s added.

Oman’s local currency (LC) and foreign currency (FC) country ceilings were raised by one notch to A3 from Baa1 and to Baa1 from Baa2, respectively. The LC country ceiling at A3, three notches above the sovereign issuer rating, incorporates the economy’s heavy reliance on a single revenue source, the government’s large economic footprint, and Oman’s track record of material external imbalances during the periods of lower oil prices, mitigated by predictable institutions and moderate political risk.

The FC country ceiling at Baa1, one notch below the LC ceiling, reflects relatively modest transfer and convertibility risks, taking into account the sovereign’s robust foreign-currency buffers and Oman’s track record of improving fiscal policy effectiveness, balanced by the economy’s high, albeit declining, external indebtedness.

Stronger debt matrix

Oman’s government debt burden declined to 35.5% of GDP at the end of 2024 from 37.5% of GDP at the end of 2023, extending even further the significant trend improvement in the sovereign’s fiscal strength metrics since 2020.

‘We expect most of Oman’s debt ratios to continue to improve in the coming years, albeit at a more modest pace than over the past four years. Furthermore, we expect Oman’s debt metrics to remain robust and consistent with a Baa3 rating even under alternative scenarios where oil prices moderate below our medium-term assumption of US$65/barrel.’

This resilience mainly reflects the cumulative effect of spending restraint, which has led to a decline in government expenditure to less than 29% of GDP in 2024 from an average of more than 41% of GDP during 2016-2020.

Excluding the impact of the oil and gas production-related spending (which was moved from the budget to another public sector entity), the expenditure decline was smaller but still significant, measuring more than 5 percentage points of GDP. This contributed to lower the fiscal downside in potential adverse oil price scenarios.

Overall, we estimate that Oman’s fiscal breakeven oil price (at which the government balances its budget) declined to less than US$70/barrel in 2024-2025 from an average more than US$84/barrel in 2016-2020.

Oman’s lower debt affords the government more time to adjust during the periods of adverse macroeconomic shocks. It also provides additional fiscal space to implement structural reforms and support economic diversification initiatives that that could, over time, reduce its still-heavy economic and fiscal reliance on the hydrocarbon sector.

In addition, the lower debt burden has reduced the annual fiscal drag from interest payments, which declined to 7.2% of revenue (2.3% of GDP) in 2024 from 9.0% of revenue (3.1% of GDP) in 2021, while also lowering annual refinancing needs.