Muscat, Oman; Ongoing improvements in Oman’s fiscal performance, buoyed by supportive oil prices and prudent fiscal management, have led Moody’s Ratings to upgrade its outlook to positive from stable. The agency has affirmed its Ba1 long-term issuer and long-term senior unsecured ratings for Oman and its (P)Ba1 senior unsecured medium-term note program rating.
Moody’s cited a declining debt burden, particularly in foreign-currency debt, as a key factor in enhancing the government’s capacity to absorb economic shocks, such as global energy market fluctuations or rising global interest rates. The Oman government reduced its debt by nearly 27% in nominal terms during 2022-2023 and a further 5.6% in the first seven months of 2024, bringing it down to around 34% of the projected full-year GDP as of July 2024. This achievement came without depleting its stock of financial assets.
The Petroleum Reserve Fund, Oman’s main internal source for debt service payments, saw its assets increase to $3.2 billion by mid-August 2024, up from $2.7 billion at the end of 2023 and $1.9 billion at the end of 2022. The government’s fiscal surplus, which reached around 1% of the projected full-year GDP in the first half of 2024, further supported debt repayments.
Government expenditure in the first half of 2024 increased by only 2% compared to the same period last year, aligning with the approved budget and demonstrating fiscal policy effectiveness. This cautious spending approach contrasts with the region’s broader trend of increased government spending, supported by high oil prices and economic diversification efforts.
However, Moody’s noted that Oman’s economic and fiscal dependence on the oil and gas sector remains a constraint. Hydrocarbon revenue constitutes a dominant share of total government revenue and is equivalent to a large share of GDP. Unlike its Gulf Cooperation Council (GCC) peers, Oman’s diversification into non-hydrocarbon revenue has lagged, which Moody’s expects will take an extended period to materialize, limiting significant upward rating potential in the medium term.
Supporting this outlook, Saudi Arabia has also shown strong economic performance, driven by high oil prices and increased government spending. According to a peer review by MEED, favourable operating environments and macroeconomic data point to sustained growth in the region. Additionally, the Saudi non-oil sector, while experiencing slowed growth in July 2024, continues to contribute to overall economic stability.
Oman’s positive outlook from Moody’s underscores the importance of effective fiscal management and the impact of global energy markets on the region’s economies. As Oman continues to navigate its economic challenges, its improving fiscal policies offer a promising path forward.
