Fitch sees a bright future for Oman
The government of Oman has made progress in its economic reforms, which has been reflected in a positive assessment by Fitch Ratings, which has given a BB rating and a stable-to-positive outlook to Muscat's ability to meet its long-term foreign currency financial obligations. This is mainly due to high oil and gas revenues, which have enabled the country to improve its financial solvency.
Fitch Ratings has upgraded Oman's sovereign credit outlook from stable to positive, reflecting an improvement in its public finances. The credit rating agency highlights the decline in government debt relative to gross domestic product, higher oil prices, spending constraints and lower external liquidity risks. Fitch also expects Oman's net foreign assets to return to a positive position this year. However, it notes that potential social pressures due to the low employment rate of young Omanis still pose a risk to public finances.
The Omani government has been working to improve financial indicators through the implementation of a series of fiscal adjustment measures such as cutting expenditures, reducing subsidies and implementing taxes. These efforts have enabled Muscat to reduce public debt and reduce the fiscal deficit. These efforts are expected to translate into improved financial indicators as the year progresses.
The Ministry of Finance of the Sultanate of Oman reported that the country's economy has seen a significant improvement thanks to higher oil prices. This has enabled Oman to pay down its debts and reduce the fiscal gap, increasing government revenues to almost USD 3 billion by the end of February 2022. Average oil prices increased from USD 81 per barrel to USD 86 per barrel, contributing to the increase in government revenues. The state recorded a budget surplus of $967.5 million at the end of February, due to higher oil production and prices. Government revenues also increased by about 12% and government expenditures increased by 4%, compared to the previous year. This shows that the state is generating financial stability, which in turn benefits the local economy.
The Sultanate of Oman is extremely dependent on oil and gas revenues, which account for 80% of the state's income. This vulnerability to fluctuations in fuel prices was demonstrated recently when the country agreed to a voluntary cut in oil production of 40,000 barrels per day. This decision was taken by the OPEC+ alliance and led to a rise in oil prices. This measure will have an impact on the Sultanate of Oman's economy, although the extent of the impact depends on the response of global markets.
The government launched a medium-term financial plan in 2020, with the aim of reducing public debt, diversifying revenue sources and stimulating economic growth. These measures have been successful, reaching a financial surplus last year of almost $3 billion, benefiting from the effects of the war in Ukraine and rising oil prices. Due to these results, Standard & Poor's upgraded Oman's outlook to positive from stable earlier this month. Oman is otherwise pursuing budgetary reforms to reduce gross debt from 60 to 40% of GDP and expects annual GDP growth of 2.5% between 2023 and 2026.
