By Sam Bridge
Ratings agency says twin fiscal and external deficits and rising indebtedness remain the key risks to Oman's BB+ rating
The elevation of Haitham bin Tariq al-Said as Oman's new Sultan will entail continuity of fiscal policies, according to Fitch Ratings.
The ratings agency said the rapid succession is in line with its long-standing assumption of a smooth transition from his cousin, Sultan Qaboos, who died on January 10, aged 79.
Twin fiscal and external deficits and rising indebtedness remain the key risks to Oman's BB+ and stable rating, which was affirmed in July 2019, Fitch said in a new research note.
It added: "As the chosen successor of Sultan Qaboos and a senior member of the government and the royal family, we believe Sultan Haitham, who is 65, will adhere to previous policy approaches.
"He will also face many of the same constraints to reform as his predecessor, in particular the need to ensure Oman's security in an unstable region and to provide economic opportunities to a young and underemployed population. The speed with which he was chosen limits the risk of a substantial loosening of fiscal policy to support the leadership transition."
Fitch said there is a possibility that Sultan Haitham could pursue bolder fiscal and economic reform than his predecessor, who had suffered from ill health in recent years.
Sultan Qaboos was pivotal to Oman's development during his nearly 50-year reign and held many senior positions, including central bank governor and prime minister, as well as those of the ministers of finance, foreign affairs and defence.
Preliminary 2019 data suggest that Oman's fiscal deficit decreased marginally to 8.4 percent of GDP last year, compared with the forecast of 9.8 percent in Fitch's last rating assessment.
The government is budgeting for a higher deficit of 8.7 percent for 2020 despite its expectation of further asset-sale proceeds and some spending cuts.
Fitch said the 2020 budget is consistent with its previous assumption that government debt will rise above 60 percent of GDP in 2020 and that sovereign net foreign assets will become negative - both indicators will then be worse than 'BB' category medians.
On the external political front, Sultan Haitham has announced that he intends to continue Oman's policy of neutrality, which appears to have widespread support within the country. In Fitch's view, this policy - along with Oman's access to other sources of financing including debt issuance, asset sales and drawdowns from reserve funds - is one of the reasons why Oman, unlike Bahrain, has thus far not sought more financial support from the Gulf Cooperation Council.