Fitch Ratings has affirmed Oman's Long-Term Issuer Default Rating (IDR) at 'BB+' with a stable outlook. This rating reflects Oman's successful fiscal consolidation efforts, demonstrated by a significant reduction in the budget deficit. The nation's economic stability is bolstered by its substantial hydrocarbon resources, providing a shield against external economic shocks.
Fitch highlighted that Oman's ratings benefit from a higher GDP per capita and superior World Bank Governance Indicators compared to its peers, alongside the positive impact of budget reforms and a decreasing government debt-to-GDP ratio. However, the ratings are tempered by Oman's heavy reliance on oil revenue, modest financial buffers due to fluctuating hydrocarbon prices, and its net external debtor status.
The government is expected to continue improving its non-oil fiscal balance. Fitch forecasts Oman's budget surplus to shrink to 2.2% of GDP in 2024 and 0.9% in 2025, from 3.2% in 2023, assuming Brent oil prices of $80 and $70 per barrel, respectively. Oman's fiscal breakeven oil price is estimated at $65-70 per barrel. Fitch assumes OPEC+ will ease production quotas in Q4 2024, partially offsetting revenue losses from lower oil prices, though overall hydrocarbon revenue is predicted to drop by 11% in 2025.
The government aims to enhance tax enforcement and streamline taxes and fees, leading to moderate growth in non-oil revenue. Oman is progressing towards implementing a personal income tax, expected to generate additional revenue from 2026. Fitch projects non-oil revenue to rise to 10.6% of GDP by the end of 2024, up from 9.7% in 2019.
Fitch also recognized the Social Investment Fund's role, primarily supporting old age and child assistance, funded partly by reduced fuel subsidies as oil prices decline from 2025. Efficiency improvements in the electricity sector and industry reorganization are contributing to power subsidy reforms.
Government debt-to-GDP is forecasted to decline to 32.4% by the end of 2024 and further to 31.9% in 2025, down from 36.5% in 2023 and 68% in 2020. Oman continues to pre-pay debt using budget surpluses from high oil prices, with an expected repayment of nearly $2.9 billion in external debt in the first half of 2024, resulting in a 10% reduction in external debt from the end of 2023, exceeding previous forecasts.
Source: Oman Observer
Fitch highlighted that Oman's ratings benefit from a higher GDP per capita and superior World Bank Governance Indicators compared to its peers, alongside the positive impact of budget reforms and a decreasing government debt-to-GDP ratio. However, the ratings are tempered by Oman's heavy reliance on oil revenue, modest financial buffers due to fluctuating hydrocarbon prices, and its net external debtor status.
The government is expected to continue improving its non-oil fiscal balance. Fitch forecasts Oman's budget surplus to shrink to 2.2% of GDP in 2024 and 0.9% in 2025, from 3.2% in 2023, assuming Brent oil prices of $80 and $70 per barrel, respectively. Oman's fiscal breakeven oil price is estimated at $65-70 per barrel. Fitch assumes OPEC+ will ease production quotas in Q4 2024, partially offsetting revenue losses from lower oil prices, though overall hydrocarbon revenue is predicted to drop by 11% in 2025.
The government aims to enhance tax enforcement and streamline taxes and fees, leading to moderate growth in non-oil revenue. Oman is progressing towards implementing a personal income tax, expected to generate additional revenue from 2026. Fitch projects non-oil revenue to rise to 10.6% of GDP by the end of 2024, up from 9.7% in 2019.
Fitch also recognized the Social Investment Fund's role, primarily supporting old age and child assistance, funded partly by reduced fuel subsidies as oil prices decline from 2025. Efficiency improvements in the electricity sector and industry reorganization are contributing to power subsidy reforms.
Government debt-to-GDP is forecasted to decline to 32.4% by the end of 2024 and further to 31.9% in 2025, down from 36.5% in 2023 and 68% in 2020. Oman continues to pre-pay debt using budget surpluses from high oil prices, with an expected repayment of nearly $2.9 billion in external debt in the first half of 2024, resulting in a 10% reduction in external debt from the end of 2023, exceeding previous forecasts.
Source: Oman Observer
