S&P raises Oman’s outlook to positive on reform progress and rising oil prices

S&P Global Ratings revised the outlook for Oman’s rating from stable to positive, citing improving fiscal conditions, progress on reforms and rising oil prices.

The credit rating agency also confirmed the country’s long and short-term sovereign credit ratings in foreign and local currencies, it said in a statement.

“The positive outlook indicates that we believe that Oman’s reform program and the increase in oil prices compared to 2020 will reduce budget deficits and slow the increase in net public debt over the next three years,” he said. declared S&P.

Oman’s economy is expected to recover in 2021 from the double impact of the Covid-19 pandemic and the collapse in oil prices last year. The economy is expected to grow 2.5% after contracting 2.8% in 2020, the International Monetary Fund announced last month.

The economic recovery will be driven by 1.5% growth in non-oil activity this year, down from a 3.9% contraction in 2020, the Washington-based fund said. Real crude oil domestic product is expected to rebound 3.5% after declining 1.7% in 2020.

The Sultanate has adopted various tax measures over the past year to support the economy during the Covid-19 pandemic, including interest-free emergency loans, reductions and exemptions from taxes and fees, the possibility to pay taxes in installments and a job security fund to support citizens who have lost their jobs.

The budget deficit and public debt, which rose sharply in 2020, are expected to improve significantly in the medium term as Oman implements the plan to balance the budget over the medium term, the IMF said.

S&P estimates that Oman’s net debt will continue to grow to reach 30% of GDP in 2024, up from around 13% in 2020.

The positive outlook indicates that we believe that Oman’s reform program and the increase in oil prices compared to 2020 will reduce budget deficits and slow the increase in net public debt over the next three years.

S&P Global Ratings

“Oman faces significant external debt maturities of $ 11 billion over 2021-2022. We expect government deficits and maturing debt to be financed by a mix of external debt; ‘Oman Investment Authority and Petroleum Reserve Fund; and, to a lesser extent, domestic debt,’ the rating agency said.

If the government fully implements its reform agenda and oil prices become more favorable, the pace of Oman’s net debt increase could slow significantly below S&P forecast of just over 5% of GDP on average from 2021 to 2024, the agency said.

S&P also expects a significant reduction in Oman’s budget deficit to 4.2% of GDP in 2021, from 15.3% in 2020. This will be due to the rise in oil prices, the proceeds of the tax on added value and tax reforms, which include revised salary scales. for new civil servants, a reduction in allowances and an increase in electricity and water prices.

The sultanate is also planning a new income tax for high-earners which is expected to be implemented in 2023. Oman will also soon unveil an investor residency program that aims to provide long-stay residence visas to people who invest in the country, according to local media reports citing the Ministry of Trade, Industry and Investment Promotion last week.

In November last year, Oman further opened up its real estate market to foreign investors by giving them access to a wider choice of residential properties as part of reforms aimed at improving the country’s fiscal position.

According to S&P estimates, Oman’s real GDP is expected to grow 1.7% this year, then accelerate to 3.1% on average in 2022-2023, as oil and gas production increases afterwards. the relaxation of Opec + production limits.

“Economic activity will start to recover in 2021. However, given the current oil production limits under the Opec + agreement, the lockdown measures induced by Covid-19 and the slowness of vaccinations until ‘In mid-2021, we only expect a slight economic recovery of around 1.7 percent this year, ”S&P said.

A stronger economic rebound from 2022 will be supported by higher oil and gas production and growth in the non-oil sector, the agency added.

Meanwhile, liquid government assets, estimated at 50% of GDP in 2021, have supported Oman’s ratings, S&P said.

The rating agency said it expects GCC countries to provide timely support to Oman in the unexpected event of a significant deterioration in external reserves that are supporting the peg of the Omani rial to the US dollar.

Updated: October 2, 2021, 12:56 PM

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