S&P affirms Oman's credit ratings

CREDIT RATINGS: S&P affirms short and long-term Omani debt. (Getty Images)

Standard & Poor's Ratings Services has affirmed its 'A' long-term and 'A-1' short-term sovereign credit ratings on the Sultanate of Oman. The outlook remains stable.

At the same time, S&P's Transfer & Convertibility risk assessment was affirmed at 'AA-'.

"The ratings on Oman are supported by the government's strong fiscal position, together with the country's solid external finances and increasing wealth levels," said Standard & Poor's credit analyst Luc Marchand.

The agency said the government has prudently and transparently managed the windfall from a sustained period of high oil prices, leading to a general government surplus it estimates at 8.8% of GDP in 2008.

With the surpluses of the past few years, the general government's net asset position increased to about 42% of GDP at year-end 2008. This will be a crucial buffer to weather the negative impact on public finances of the expected sharp decrease in average oil prices in 2009 compared to 2008, S&P added.

The general government budget will turn into a deficit of 4.9% of GDP, decreasing its estimated liquid assets (mostly managed externally) to an approximate $25 billion from about $27 billion in 2008. Government debt remains modest at an estimated 6% of GDP in 2009.

S&P noted however that the ratings on Oman remain constrained by a high economic dependence on hydrocarbons, which constitute the vast majority of fiscal revenues and exports, and about 51% of GDP in 2008.

On the political front, the key challenges to creditworthiness remain a high level of unemployment among Omanis and the prevailing geopolitical tensions across the region.

''We see inflationary pressures abating with the weakening of the economy, with an economic rebound expected to begin next year.''

"The stable outlook is based on our expectation that the high level of government assets, the expected increasing LNG exports, and the growth of the nonhydrocarbon sector will continue to mitigate concerns stemming from the current decline in oil prices and the recent years' decline in crude oil production," added Mr. Marchand.

The outlook also assumes that fiscal policy will remain oriented toward fulfilling Oman's development needs and limiting vulnerability to fluctuations in oil production and prices.

The ratings could be raised if a secular decline in crude oil output was reversed or if the government strengthened its domestic tax revenue base significantly - through the introduction of VAT, for example.

Conversely, the ratings could come under downward pressure if the geopolitical or political situation were to deteriorate sharply, or if government assets were to decline more quickly than forecast.

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