Oman's sovereign external asset position remains, for now, stronger than other ‘BB’ category sovereigns, supporting the government's financing flexibility.
Sunday 28, July 2019 BY KUDAKWASHE MUZORIWA
Fitch Ratings has affirmed its BB+ long-term foreign-currency issuer default ratings (IDR) of Oman with a stable outlook.
The Sultanate’s ratings balance its undiversified economy, high fiscal and external deficits as well as debt ratios against relatively high GDP-per-capita and other strong structural features relative to ‘BB’ category peers.
Fitch forecasts a widening of the fiscal deficit to around 10 per cent of GDP in 2019 as moderation in oil prices offsets modest spending cuts and gains in non-oil revenue.
Additionally, the Sultanate's oil revenues are also under pressure from a voluntary commitment to OPEC, which is constraining average oil production slightly below the 2018 level and well below capacity.
The rating agency estimated the fiscal break-even Brent price at $90/bbl in 2019. Oman’s preliminary fiscal deficit in H1 2019 was only around two per cent of full-year GDP, however, Fitch expects budget performance to weaken in H2 2019, with spending traditionally concentrated towards the end of the year.
However, Fitch expects continued spending restraint, the introduction of value-added tax (VAT) in H2 2020 as well as revenue gains from the new Khazzan gas field and potential increases in oil production to narrow the deficit to below seven per cent of GDP by 2021.
Fiscal deficits are leading to a sharp deterioration in the Sultanate's sovereign and external balance sheets and Fitch expects government debt to continue on an upward trend into the 2020s, reaching 61 per cent of GDP by 2021 from 51 per cent of GDP in 2018, above the historical ‘BB’ median of 39 per cent of GDP.