Moody's upgrades Oman to Baa3, outlook stable on improved debt metrics

Investing.com -- Moody's Ratings has upgraded Oman's long-term issuer and senior unsecured ratings to Baa3 from Ba1 and changed the outlook to stable from positive on Thursday.

The upgrade reflects expectations that Oman's government debt metrics will remain robust even if oil prices fall below Moody's medium-term assumption of $65 per barrel. The rating agency cited the significant reduction in debt burden in recent years and cumulative impact of spending restraint as factors increasing Oman's resilience to potential future declines in oil demand and prices.

Oman's government debt burden declined to 35.5% of GDP at the end of 2024 from 37.5% at the end of 2023, continuing the improvement trend since 2020. Moody's expects most of Oman's debt ratios to continue improving in coming years, though at a more modest pace than over the past four years.

The stronger debt position provides the government more fiscal space and time to implement structural reforms that could reduce the country's heavy economic and fiscal reliance on the hydrocarbon sector.

Government expenditure has fallen to less than 29% of GDP in 2024 from an average of more than 41% during 2016-2020. This spending restraint has lowered Oman's fiscal breakeven oil price to less than $70 per barrel in 2024-2025 from an average of more than $84 per barrel in 2016-2020.

The stable outlook balances fiscal risks under different oil price scenarios. Upside risks stem primarily from regional geopolitical tensions that could drive oil prices higher, while downside risks include the possibility of accelerated global carbon transition leading to weaker hydrocarbon revenue.

Moody's also raised Oman's local currency and foreign currency country ceilings to A3 from Baa1 and to Baa1 from Baa2, respectively.

The rating agency noted that Oman's credit profile remains exposed to oil price fluctuations given its economic and fiscal reliance on hydrocarbons. The hydrocarbon sector contributed on average around 34% of GDP, 56% of exports, and 76% of government revenue during 2020-2024.

Longer-term upside potential comes from ongoing fiscal and economic reforms, including plans to introduce a 5% personal income tax from 2028, develop a large green hydrogen sector, and expand liquefied natural gas production capacity by a third by 2030.

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