Economy

Oman’s debt repayment pace to slow, says Fitch

By Pramod Kumar

January 18, 2024, 4:36 AM

Oman's net oil revenue stood at OMR4.84 billion, falling 10% year on year — Oman's smaller surplus this year will partially reflect a projected one percent drop in oil output

Oman will continue to pay down government debt, but increasing social spending will slow the pace of debt reduction this year, Fitch Ratings said in a report.

The global ratings agency forecasts that the Gulf nation’s surplus will likely fall to 1.8 percent of GDP in 2024 from an estimated 3.3 percent in 2023, based on the budget data and its latest oil price assumptions.

In December 2023, Fitch projected the surplus to remain stable at 2.1 percent of GDP in 2024 from 2.2 percent in 2023.

“Although our treatment of certain budget items differs from that of the authorities, the official figures suggest the fiscal surplus may be slightly larger than our previous projections in 2023 and slightly smaller in 2024,” the report said.

The smaller surplus this year will partially reflect a projected one percent drop in oil output, in line with the recent reduction of the country’s Opec+ production quota, as well as a modest weakening in global oil prices, which will weigh on revenues.

The budget projects non-oil revenue growth to be driven by more robust economic activity without announcing new revenue-raising measures.

Oman plans to widen the social safety net, adding about one percent of GDP to spending. However, fuel subsidy costs will remain significant, at about 0.7 percent of GDP in 2024, with the government likely to scrap the subsidy should global energy prices fall.

Fitch anticipates government spending to remain prudent, with the budget not indicating significant backtracking on recent fiscal consolidation measures.

The government will use part of the surplus to continue debt repayment. However, the pace of debt reduction will ease this year, with government debt/GDP falling to 33 percent in 2024 from 36 percent in 2023.

“This will be driven not only by the smaller surplus, but also by the authorities’ plans to channel some of the surplus to Oman Future Fund to support economic development,” Fitch said.