S&P lifts Oman's outlook to 'positive' as fiscal position improves

The stronger financial profiles of its state-owned entities will help the sultanate's resilience to oil price shocks

Shoppers at the Mutrah Souq at Muscat. Oman has made moves to boost and diversify its economy, reducing its reliance in the energy sector. Victor Besa / The National

S&P Global Ratings has lifted Oman's outlook, noting the sultanate's improved fiscal position and stronger financial profiles for its state-owned enterprises.

The upgrade to “positive” from “stable” reflects expectations that Muscat's economic reform programme could lead to faster-than-expected deleveraging in many of its government-owned entities, without dampening economic growth, the New York-based agency said on Friday.

As a result, this would boost the Omani economy's resilience to adverse oil price shocks, S&P said.

S&P also affirmed Oman's “BB+/B” long and short-term foreign and local currency sovereign credit ratings. A “BB+” rating is just one level below investment grade, while “B” is five levels below.

“State-owned enterprises significantly influence the Omani economy … the government is reducing its footprint in the economy, to move from owner to regulator, via asset sales to help develop the non-hydrocarbon private sector and attract foreign direct investment,” S&P said.

“We view the reorganisation of the government-related entity sector as increasing government oversight, while enabling conditions to be imposed on the individual companies to enhance efficiency and improve their financial positions.”

Oman has made moves to boost and diversify its economy, reducing its reliance in the energy sector, most notably on oil and hydrocarbons.

The Gulf state launched a three-year fiscal stability programme in October 2022 to add momentum to its economic recovery from the pandemic-driven slowdown and support the development of its financial sector.

Oman’s economy is estimated to have grown by 1.3 per cent in 2023, down from 4.3 per cent in 2022, due to Opec+ oil production cuts, the International Monetary Fund said in November.

S&P estimates the sultanate's real gross domestic product, which factors-in inflation, to have decelerated to 1.6 per cent in 2023, after a hydrocarbon-driven 9.6 per cent surge in 2022. It projects real GDP to average about 2 per cent annually from 2024 to 2027.

Oman's economy, however, remains dependent on the oil sector, which accounts for about 30 per cent of GDP, 60 per cent of goods exports and 75 per cent of government revenue, S&P said.

“We expect the government to broadly continue with its fiscal reform programme. However, because oil prices are still high, it has the flexibility to moderate some measures, to support economic activity and reduce the effects of past austerity on the population,” it said.

Oil prices recorded a strong gain in the first quarter of the year amid Opec+ output cuts and rising fears of supply disruption due to geopolitical risks.

Brent, the benchmark for two thirds of the world’s oil, rose by about 13 per cent in the first three months of 2023. West Texas Intermediate, the gauge that tracks US crude, gained about 16 per cent during the same period.

Oman posted a budget surplus of 931 million Omani rials ($2.42 billion) for the financial year 2023, according to preliminary data after a more-than-anticipated rise in public revenue on higher oil and gas production and prices.

Last month, Fitch Ratings said that Oman’s aim to expand domestic green hydrogen production could support its gross domestic product, fiscal revenue and the balance of payments over the long term amid the global energy transition.

Oman aims to produce at least a million tonnes of renewable hydrogen a year by 2030 before increasing the capacity to 3.75 million tonnes by 2040 and 8.5 million tonnes by 2050.

“Favourable oil sector dynamics, coupled with higher non-hydrocarbon output driven by domestic demand and the performance of key sectors such as tourism, transportation [mainly shipping] and utilities, should sustain Oman's real economic growth over 2023 to 2026,” S&P said.

Furthermore, credit conditions in Oman remain accommodative and credit to the private sector should help support non-hydrocarbon sector growth in 2024, as it did in 2023, S&P said.

In January, the sovereign wealth fund Oman Investment Authority launched a 2 billion rial fund to encourage investments in the private sector and in small and medium-size enterprises.