Fitch The ratings upgraded the long-term default rating of Oman’s currency issuers on August 15 from BB to BB, with a stable outlook.
It’s a further sign of how oil producers in the Middle East are profiting from soaring oil prices this year, driven by Russia’s invasion of Ukraine in February. Aided by the same trends, the Saudi economy is expected to reach over $1 trillion in value this year.
Oman is a much smaller economy, but Fitch pointed to “significant improvements” in the sultanate’s fiscal metrics this year, with rising oil revenues supporting budget surpluses and driving a sharp drop in the public debt-to-GDP ratio.
The rating agency predicts a budget surplus of 5.5% of GDP in 2022 and 3.4% in 2023 – after eight consecutive years of deficits. The trend this year and next comes despite Fitch forecasting average oil prices to drop from $105 a barrel this year to $85 next year.
Oman’s situation is also favored by a gradual ramp-up of its crude oil and condensate production to an expected peak of 1.1 million barrels per day over the period.
The Omani government has used its oil and gas windfall to pay off some of the country’s debts. In the first seven months of this year, it reduced the public debt burden by RO2.2 billion ($5.7 billion). It now stands at around $48.3 billion.
The economy has also attracted some investment from wealthier neighbors, with the Saudi Public Investment Fund recently committing $299 million.
The government has also used some of its extra revenue to mitigate the impact on its citizens of high fuel prices and inflation more generally. Fitch said spending is expected to be higher than expected in 2022 due to fuel and other subsidies for residents. He also noted that the deadline for phasing out electricity subsidies has been extended from five to ten years.
However, the government still faces many challenges and policymakers in Muscat will be aware that oil prices tend not to stay high for long periods of time. Fitch said Oman’s financing position was now considerably more comfortable compared to recent years, but added that its “medium-term financing needs remain large and Oman’s external debt level is high.”