Oman’s Credit Rating Receives a Boost: Upgraded to ‘BB+’ by CI Ratings

Muscat, The Gulf Observer: Oman’s Long-Term Foreign Currency Rating (LT FCR) and Long-Term Local Currency Rating (LT LCR) have been raised from ‘BB’ to ‘BB+’ by Capital Intelligence Ratings (CI Ratings). The Short-Term FCR (ST FCR) and ST LCR have been affirmed at ‘B’, while the Outlook for the ratings has been revised to Stable from Positive.

The upgrade is attributed to Oman’s sustained commitment to fiscal responsibility, highlighted by the continuous decline in gross central government debt. CI Ratings anticipates that both fiscal and external balances will remain in surplus in 2024-2025, driven by favorable hydrocarbon prices and ongoing reform initiatives.

In a statement released on Friday, CI Ratings emphasized the positive impact of prudent fiscal and debt management policies on public finances. The government’s strategic approach aims to reduce budget vulnerability to oil price fluctuations, with recent hydrocarbon windfalls being utilized to repay, prepay, and buy back expensive external debt.

The ratings also reflect Oman’s dedication to structural reforms outlined in Oman Vision 2040, underpinning the nation’s economic diversification, fiscal strength, and private sector participation. The relative stability of Oman’s banking system and the expectation of financial support from other GCC countries in times of need further contribute to the favorable ratings.

Oman’s government budget maintained strength in 2023, registering a surplus of 5.2 percent of the gross domestic product (GDP). This surplus is attributed to advantageous hydrocarbon prices and continued fiscal consolidation measures, including spending rationalization and reduced subsidies. Notably, central government debt declined to 36.8 percent of GDP at the end of 2023, compared to 42.6 percent at the end of 2022.

The decline in external government debt, achieved through buyback of eurobonds and sukuk, along with prepayment of syndicated loans, has positively influenced the debt structure. Interest expense has decreased to 5.9 percent of total revenues in 2023, supporting an optimistic outlook for the next two years.

Government contingent liabilities from State-Owned Enterprise (SOE) debt, though diminishing, remain a potential fiscal risk. The reorganization of non-hydrocarbon SOEs under the Oman Investment Authority (OIA) and hydrocarbon SOEs under Energy Development Oman (EDO) has led to deleveraging, with debt falling to approximately 26 percent of GDP in 2023.

CI’s baseline scenario anticipates sustained high hydrocarbon prices throughout 2024-25, contributing to an average central government budget surplus of 3.1 percent of GDP. Oman’s commitment to structural reforms, economic diversification, and private sector involvement align with the nation’s long-term development goals.

The upgraded ratings also acknowledge the improvement in Oman’s external strength, with a current account surplus of 5.1 percent of GDP in 2023. Foreign currency reserves at the central bank, along with the potential for financial assistance from GCC countries, mitigate external liquidity risks.

While economic growth softened in 2023 due to voluntary hydrocarbon production cuts, Oman’s outlook remains positive. The expectation of increased FDI in the hydrocarbon sector and infrastructure projects in non-hydrocarbon sectors positions Oman for sustained economic growth, with an estimated average GDP expansion of 2.4 percent in 2024-25.

Oman’s credit rating upgrade reflects the nation’s resilience, prudent fiscal management, and commitment to economic reforms, signaling a positive trajectory for its economic future.