Oman's Baa1 rating with a stable outlook reflects its high wealth levels and a still comparatively strong government balance sheet, balanced against credit challenges, including its heavy reliance on the oil and gas sector, Moody's Investors Service said in a report today.

"Although we expect government debt to rise to 40 per cent of GDP by 2018 from less than 5 per cent at the start of the oil price shock, Oman's fiscal buffers will support the country through its process of fiscal and external adjustment," said Steffen Dyck, a Moody's senior credit officer and co-author of the report titled "Government of Oman -- Baa1 Stable, Annual Credit Analysis".

"Yet, Oman's heavy economic and fiscal reliance on the oil and gas sector will remain an ongoing source of credit challenge."

For 2016-2020, Moody's forecasts real GDP growth in Oman of around 2.1 per cent per year on average, significantly lower than the 3.8 per cent average annual growth seen between 2011 and 2015. This forecast is based on Moody's expectation of only limited increases in oil and gas production and the dampening effect from ongoing fiscal consolidation on non-oil real GDP growth.

Moody's expects Oman's 2017 fiscal deficit to narrow substantially to RO3.1 billion ($8.1 billion, 11.4 per cent of GDP) from an estimated RO5 billion ($13.0 billion, 20.1 per cent of GDP) in 2016, and fiscal deficits will continue to decline gradually over the following years.

Helped by higher oil prices, hydrocarbon revenues will start to gradually rise from 2017. Non-oil revenues will also gradually increase over the coming years, backed by a re-pricing of government services, the corporate income tax rate increase, and the expected introduction of value-added tax from 2018 onwards.

The stable outlook reflects the anticipated resilience of Oman's rating over the next 12 to 18 months and signals that upward and downward pressures are balanced.

Upward pressure on the rating would stem from faster-than-expected progress in containing government fiscal deficits and debt and in diversifying the economy and government finances away from oil.

On the other hand, downward pressure would emerge if government finances deteriorate faster than Moody's baseline scenario currently anticipates.

Greater-than-expected weakening in the balance of payments would also be credit negative. – TradeArabia News Service