Oman gets first upgrade from Fitch on oil-led fiscal turnaround

Oman’s credit ranking was upgraded for the first time by Fitch Ratings as higher oil prices eased financing pressures and reversed nearly a decade of budget deficits.

Fitch raised Oman’s long-term foreign-currency rating by one notch to BB, or two levels below investment grade, according to a statement on Monday. Before the decision, the firm downgraded the sultanate four times since initiating its coverage in 2017.

“The upgrade reflects significant improvements in Oman’s fiscal metrics, a lessening of external financing pressures and ongoing efforts to reform public finances,” Fitch analysts including Toby Iles said.

Although long considered to be among the weakest sovereigns in the Gulf Arab region, Oman has more recently emerged as a reform standout, with a programme to balance the books and lower its debt that included the introduction of value-added tax last year.

Oil’s surge on the back of Russia-Ukraine crisis has pushed crude above the break-even level for almost all the Middle East’s exporters, shifting budgets into surplus for even the most vulnerable economies so long as prices remain high.

But Oman, the biggest oil exporter outside OPEC, has also stayed the course on reforming its finances, seizing on the opportunity to repay debt with part of its revenue windfall. Fitch forecasts the government will run budget surpluses of 5.5 per cent and 3.4 per cent of gross domestic product in 2022 and 2023, respectively, its first since 2013.

“While we expect oil prices to trend down over the medium term and there has been some dilution of fiscal reform in 2022, we believe that commitment to fiscal consolidation via the state’s medium term fiscal plan will be sufficient to limit renewed deterioration in public- and external-finance metrics,” Fitch’s analysts said.

Still rated junk by all three major credit assessors, Oman already won an upgrade from S&P Global Ratings in April. Fitch now rates it one level higher than both S&P and Moody’s Investors Service.

Fitch also said that Oman’s government has already met its external financing requirement for 2022 and lowered the size of next year’s maturities to $1.7bn.

Other highlights from Fitch:

* Spending may be 6 per cent more than budgeted in 2022 for reasons that include fuel subsidies and higher capital expenditure
* Oman is set to lower the fiscal break-even oil price to around $66 per barrel in 2024
* The ratio of government debt to GDP is forecast to drop to 46.7 per cent in 2022 and 44.9 per cent in 2023, from around 70 per cent in 2020
* Net foreign borrowing by Oman this year will be negative to the tune of around 4 per cent of GDP
* State-owned enterprise debt estimated to fall in 2022 to 30 per cent-35 per cent of GDP, from around 42 per cent in 2021