Moody’s upgrades Oman credit ratings on lower debt burden

Moody’s Investors Service (Moody’s) upgraded Oman’s credit ratings on lower debt burden due to supportive oil prices and spending restraint.

The ratings agency raised the Sultanate’s long-term issuer and long-term senior unsecured ratings to “Ba1” from “Ba2” and changed the outlook to stable from positive. 

The upgrade reflects the expectation of further improvements in the country’s debt burden and debt affordability metrics in 2023, Moody’s said in a report. 

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The government’s actions come amid the oil prices windfall gains through spending restraint and prioritisation of debt repayment. 

“A lower debt burden increases the sovereign’s resilience to potential future shocks,” the ratings agency said.

The stable outlook captures the balance of risks despite the Gulf nation’s heavy economic and fiscal reliance on the hydrocarbon sector.

This exposes the government to a “potentially large and protracted deterioration” in its fiscal and external accounts in case of a decline in global oil demand and prices. 

The government’s fiscal balance remained in a surplus of 3.5 percent of GDP following a surplus of 7.5 percent of GDP in 2022, the highest surplus in 10 years, and a deficit of 3.1 percent of GDP in 2021. 

While most of the fiscal improvement during 2022-23 resulted from higher hydrocarbon revenue, the government’s spending restraint and the value-added tax introduced in April 2021 contributed to maximising the fiscal windfall. 

Oman’s outstanding government debt declined by at least 11 percent, or $5 billion of primarily external debt.

As a result, the debt burden will likely decline below 38 percent of GDP by the end of 2023 from 40 percent of GDP at the end of 2022, the lowest debt-to-GDP ratio since 2016 and close to half its peak in 2020. 

Moody’s expects oil prices to average $80-85 per barrel in 2024-25 before declining gradually to the medium-term fundamental range of $55-75/barrel. 

Hence, the government debt burden will decline to around 35 percent of GDP in the next three years, it added.