S&P downgrades Oman’s rating for the second time in 2020


هذه الصفحة متوفرة بهذه اللغة: العربية

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17 October 2020

MUSCAT (WAF)- S&P Global Ratings cut Oman’s credit rating from BB- to B+ with a stable outlook, marking the second downgrade of the Sultanate’s rating in 2020 following March’s downgrade.

The downgrade reflects S&P’s view of the financial pressures facing the Sultanate’s public finances in light of the high level of public debt, low oil prices, and the slowdown in the economy’s recovery from the effects of the Covid-19 pandemic. On the other hand, it reflects the positive impact that the fiscal balance program, Tawazon 2020-2024, is expected to have.

The rating agency notes in its report that the increase in net debt will remain high until 2023 and “that gross government debt will rise to about 84% of GDP by end-2020 from 60% in 2019, while government-related enterprises (GREs) debt will reach 43% of GDP from 30% during the same period”.

However, the agency expects that the pace of debt accumulation will slow down significantly from 2021 onwards, on the back of higher oil prices and the government’s “fiscal reform plan”.

“While we acknowledge that the government has responded more robustly to its weak fiscal position than previously, we expect fiscal austerity measures to be introduced gradually to maintain socioeconomic stability. As such, we anticipate the government’s balance sheet will continue to deteriorate over the forecast period,” S&P report adds.

According to calculations made by Standard & Poor’s, by the end of July, the external liquid assets of the Oman Investment Authority was about 11 billion US dollars (4.2 billion Omani Rials), while its domestic cash balances are equivalent to about one billion Omani Rials ($2.6 billion). The agency believes that the Omani government will resort to this liquidity if more significant financial adjustments are not introduced.

S&P’s expects the drop in the government’s liquid assets – including the assets of the Oman Investment Authority, bank deposits and the Petroleum Reserve Fund (PRF)- from 69% of GDP in 2020 to 45% in 2023. Adding that the government “had withdrawn about $420 million from the PRF as of August for debt-servicing.”

Earlier this year, Oman arranged a bridge loan of $2 billion from the international market and RO200 million ($520 million) Sukuk domestically. “The government is set to raise about $5.5 billion from the international capital markets during the rest of the year,” S&P’s report states.