Investment

S&P upgrades Oman’s positive outlook on progress of reforms and rising oil prices

S&P Global Ratings changed the outlook on Oman’s rating to positive from stable, citing improving financial position, progress on reforms and rising oil prices.

The credit rating agency also adopted the country’s sovereign and local currency long and short-term credit rating of ‘B + / B’, it said in a statement.

“The positive outlook indicates that we are considering Oman’s reform program and that higher oil prices in relation to 2020 will narrow fiscal deficits and slow the increase in net government debt over the next three years. years, “S&P said.

Oman’s economic recovery is expected in 2021 from the dual impact of the Covid-19 pandemic and the collapse of oil prices last year. The economy is expected to grow by 2.5 percent after a 2.8 percent contraction in 2020, the International Monetary Fund said last month.

The economic recovery will lead to 1.5 percent growth in non-oil activity this year, compared to a 3.9 percent contraction in 2020, the Washington-based fund said. The real gross gross product of oil is expected to rise 3.5 percent after declining by 1.7 percent in 2020.

The sultanate has adopted various fiscal measures over the past year to support the economy during the Covid-19 pandemic, including unsecured emergency loans, tax and fee cuts and waivers. , the flexibility to pay taxes in installments and a Job Security Fund to support citizens who have lost their jobs.

The government’s fiscal deficit and debt, which will rise sharply in 2020, is expected to improve significantly in the medium term as Oman implements the Medium-Term Fiscal Balance Plan, the IMF said.

S&P estimates that Oman’s net debt will continue to rise to 30 percent of GDP in 2024, from nearly 13 percent in 2020.

The positive outlook indicates that we are considering Oman’s reform program and that higher oil prices in relation to 2020 will narrow fiscal deficits and slow the increase in net government debt over the next three years.

S&P Global Ratings

“Oman is facing huge external debt debt of $ 11 billion over 2021-2022. We expect that financial deficits and the maturing debt will be funded by a mix of external debt; asset drawdowns from to the Oman Investment Authority and Petroleum Reserve Fund; and, to a lesser extent, home debt, ”the rating agency said.

If the government fully implements the reforms program and oil prices become more favorable, the pace of Oman’s net debt increase could slow significantly below S&P’s forecast of slightly higher than 5 percent of GDP on average over 2021 to 2024, the agency said.

S&P also expects a significant reduction in Oman’s fiscal deficit to 4.2 percent of GDP in 2021, from 15.3 percent in 2020. This is driven by higher oil prices, proceeds from added taxes and fiscal reforms, which included revised salary levels for new government employees, lower allowances and increased electricity and water bills.

The sultanate is also planning a new personal income tax on high -wage earners that is likely to be implemented in 2023. Oman will also soon unveil an Investor Residence scheme aimed at providing long -term residence visas in people who have invested in the country, according to local media reports quoting the Ministry of Commerce, Industry and Investment Promotion last week.

In November last year, Oman opened up the real estate market to foreign investors by allowing them access to a wider selection of residential properties as part of reforms aimed at improving financial position of the country.

Oman’s real GDP is estimated to grow 1.7 per cent this year and then accelerate to 3.1 per cent on average in 2022-2023 as oil and gas production ramps up after Opec +production limits are reduced, according to in S&P estimates.

Economic activity will begin in 2021. However, due to ongoing oil production limitations under the Opec +agreement, the Covid-19 lockdown measures and the slow pace of vaccination until mid-2021, we only expect a mild economic recovery of about 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 of the non -oil sector, the agency added.

Meanwhile, the government’s liquid assets, which are estimated to provide 50 percent of GDP in 2021, support 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 supporting the peg of the Omani rial to the US dollar.

Updated: October 2nd 2021, 12:56 PM

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