Moody’s Investor Service has changed the outlook on Oman’s credit rating to stable, according to an official statement from the agency.
Moody’s in its most recent announcement changed the rating from negative to Ba3.
According to Moody’s, the change in outlook “reflects the significant easing of pressures on government liquidity and external financing.”
This is said to have come as a result of the ongoing implementation of the Medium-Term Fiscal Plan and a relative rise in oil prices since the middle of 2020.
Both of these are believed to be leading to a steady decline in the direct government debt burden to around 60 percent of the GDP by 2024.
Moody’s expects that oil prices will average above $60 per barrel during the coming years, increasing the likelihood that these pressures will remain under control.
According to Moody’s, the bounce-back to Ba3 ratings reflects the agency’s view that despite narrower fiscal and current account deficits, Oman’s structural vulnerability to potential future declines in oil demand and prices will remain high.
Moody’s estimates that higher oil prices will account for around half of the expected reduction in the fiscal deficit to less than 2 percent of the GDP in 2021 from 18 percent of GDP in 2020.
Based on Moody’s assumption that prices continue to average above $60-65 per barrel in 2022-23, the fiscal deficit is expected to remain small in the medium term.
This will apparently point to a large and likely durable reduction in the government’s gross financing needs to less than 10 percent of the GDP per annum during the mentioned time-period from more than 22 percent of the GDP in 2020.
Moody’s expects Oman’s current account deficit to decline below 4 percent of the GDP in 2021-23 from more than 13 percent in 2020.
It also indicated that sustained progress in the government’s steady and consistent implementation of its fiscal and economic reform agenda over the next few years would support an upgrade if improved policy effectiveness and better institutional capacity continued to absorb future shocks.
Additionally, improving medium-term growth prospects as a result of progress in economic diversification would also support a higher rating level.