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DEFICITS TO WIDEN

Oman projected to report substantial fiscal deficits
in 2015 and 2016

Oman growth may slow to 2-3pc, says Moody's

LONDON, August 27, 2015

Oman's economic growth is expected to slow to an average 2 per cent to 3 per cent per year until 2019 from an average 4.9 per cent between 2005 and 2014, rating agency Moody's Investors Service has said.

The sultanate's very high economic and fiscal reliance on the oil and gas sector and limited scope for fiscal reforms will add pressure to public finances in 2015-16, said Moody's Investors Service in a report published recently.
 
"We expect Oman's fiscal deficits to widen from 2015 onwards, as hydrocarbon-related government revenues drop by more than 40 per cent this year. However, Oman's low government indebtedness -- at around 5 per cent of GDP in 2014 -- gives it room to increase debt issuance to finance budget deficits," said Steffen Dyck, a senior analyst at Moody's.

Moody's projects that Oman will report substantial fiscal deficits in 2015 and 2016, at around 12 per cent of GDP, as government revenues will be negatively impacted by lower oil prices.

Moody's estimates Oman's fiscal breakeven oil price -- the price of oil at which the budget can be balanced -- at $105 per barrel (pb) in 2015. This is high compared to its peers, and almost double Moody's base case projection of $55 pb for Brent in the same year, and $57 pb in 2016, suggesting fiscal deterioration if oil prices remain subdued.

The rating agency forecasts that Oman's GDP growth will slow to around 3 per cent over 2015-2016, down from the 4.9 per cent average between 2005-14, owing to pressure on the oil and gas sector. The latter accounted for 48 per cent of nominal GDP on average between 2005-14.

According to Moody's, Oman's high levels of current government spending are not sustainable under a multi-year, low oil price scenario.

However, Moody's notes that Oman has sizeable financial buffers which the rating agency estimates at 82 per cent of 2014 GDP.

In addition, Oman's high domestic savings and healthy banking sector will continue to provide stable funding for the government, says Moody's. As a result, liquidity risk is unlikely to significantly affect government debt sustainability.

Moody's notes that regional geo-political events pose low-probability but high-impact risks for Oman. However, these risks are to some degree mitigated by Oman's position as a neutral, mediating nation in the region, as well as its close relations with major global powers.  - TradeArabia News Service
 




Tags: Oman | growth |

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