The US financial rating agency, S&P Global Ratings, published this week a report assessing the Omani economic situation, as well as the recent activities carried out by the sultanate in relation to the management of its liabilities. The decisions taken by Muscat "will help reduce debt levels [to 48% of GDP], generate interest cost savings, and smooth the country's maturity profile," the S&P report said.
This scenario has been made possible, to a large extent, thanks to the Sultanate's fiscal and governance reforms, as well as the increase in oil prices on the international market. In 2021, this sector accounted for nearly 80% of the Omani government's revenue - a modest producer compared to its neighbours in the Gulf Cooperation Council - and is expected to grow even more this year due to the rise in crude oil prices. Compared to an average profit of USD 61 per barrel of crude last year, the average price in 2022 is already around USD 95/barrel, which will allow the country to report a significant fiscal surplus.
"We expect the favourable dynamics of the oil market to allow the government to achieve a fiscal surplus of 6.5% of GDP in 2022, after average deficits of almost 10% of GDP between 2015-2021," S&P stated in the published report, which, unlike the official accounts - which leave out transfers made to the State General Reserve Fund (SGRF) - does include gross revenues from hydrocarbons.
In this way, and according to the Omani government itself, Muscat intends to allocate most of this surplus to reducing the public debt, as well as to promoting national development projects and encouraging economic activity to alleviate the effects of the austerity caused by the financial deficits. Among the measures adopted will be the suspension of value-added tax on more than 480 items (a figure that to date has not exceeded 100), the slowdown in the reduction of energy subsidies, and the downward adjustment of municipal and utility tariffs.
On the public debt front, at the end of June Oman announced the voluntary repurchase of liabilities equivalent to more than USD 700 million in Eurobonds maturing in 2025, 2026, 2027, 2028, 2029, 2031 and 2032. As the S&P report notes, this will bring the sultanate cumulative interest cost savings of around $232 million.
"We expect gross public debt to fall to 48% of GDP by the end of 2022, compared with 63% in 2021 and a peak of 70% in 2020," explained S&P Global Ratings Middle East and Africa analyst and deputy director Zahabia Gupta.
However, the US agency has also warned that oil prices are expected to return to their downtrend in the medium term, remaining above $100/bbl for the remainder of 2022, falling to $85/bbl in 2023, and $55/bbl from 2024 onwards. This could re-ignite fiscal pressures if reforms fail to bear fruit and if the country fails to diversify its revenues as long as current spending continues to rise, the report says. "We forecast that a return to fiscal deficits and a fall in nominal GDP will lead to a rise in debt-to-GDP ratios in 2024 and 2025, albeit to lower levels than in 2021," it added.
"Nevertheless, we believe that the government's proactive debt management measures this year, together with liquid assets of around 50% of GDP, should help alleviate refinancing risks going forward," S&P concluded.
Over the last few decades, Oman has shown a firm will to modernise its economy through openness and regional and global integration - with its membership of the GCC and the World Trade Organisation. This effort has earned it a BB/B rating from S&P Global Ratings.