MUSCAT: Oman’s economic growth is projected to slow to around 3 per cent over 2015-2016 period, down from the 4.9 per cent average between 2005 and 2014, international rating agency Moody’s Investor Service has said in a report.
The decline in economic growth projection is mainly due to pressure on revenue amid multi-year low oil price scenario. Crude oil revenue accounted for 48 per cent of nominal gross domestic product (GDP) on average between 2005 and 2014.
Moody’s also projected that Oman would 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.
“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.
While solid economic growth continues to support Oman (A1 negative), its 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, noted Moody’s Investors Service.
Moody’s estimates Oman’s fiscal breakeven oil price – the price of oil at which the budget can be balanced – at $105 per barrel in 2015. This is high compared to its peers, and almost double Moody’s base case projection of $55 a barrel for Brent in the same year, and $57 per barrel in 2016, suggesting fiscal deterioration if oil prices remain subdued.
According to Moody’s, the Sultanate’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 gross domestic product.
In addition, Oman’s high domestic savings and healthy banking sector will continue to provide stable funding for the government, added 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.
